Today's Law As Amended


Add To My Favorites | print page

AB-651 Career Technical Education Campaign: income and corporation taxes: manufacturer’s investment.(2003-2004)



As Amends the Law Today


SECTION 1.

 Article 1.8 (commencing with Section 52337) is added to Chapter 9 of Part 28 of the Education Code, to read:

Article  1.8. Career Technical Education Campaign
52337.
 It is the intent of the Legislature that the State Department of Education establish the Career Technical Education Campaign for the purpose of encouraging businesses to make gifts of in-kind donations for career technical education in the state. It is further the intent of the Legislature that the State Department of Education adopt rules and regulations in 2006, to do the following:
(a) Establish procedures, processes, and criteria according to which a business may, for purposes of Sections 6377, 17053.51, and 23651 of the Revenue and Taxation Code, be considered a qualified participant in a campaign as described by this article.
(b) Establish the valuation mechanism that will determine if a taxpayer is a “qualified participant” for purposes of Sections 17053.51 and 23651 of the Revenue and Taxation Code.
(c) Certify qualified participants in a campaign as described by this article and provide a list of certified qualified participants to the Franchise Tax Board and the State Board of Equalization, as appropriate, in the manner most efficient for the department and those agencies.
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, except the credit described in paragraph (9). provisions. 
(4) The minimum tax credit allowed by Section 17063 (relating to the alternative minimum tax).
(5) (A) Credits   For taxable years beginning on or after January 1, 2002, and before January 1, 2022, credits  that are allowed to reduce “net tax” below the tentative minimum tax, as defined by Section 17062.
(B) For taxable years beginning on or after January 1, 2022, credits that are allowed to reduce “net tax” below the tentative minimum tax, as defined by Section 17062, except the credit described in paragraph (7) and the credit described in paragraph (9).
(6) Credits for taxes paid to other states allowed by Chapter 12 (commencing with Section 18001).
(7) For taxable years beginning on or after January 1, 2022, the credit allowed by Section 17052.10 (relating to the elective tax under the Small Business Relief Act).
(8) (7)  Credits that contain refundable provisions but do not contain carryover provisions.
(9) The  For taxable years beginning on or after January 1, 2025, the credit allowed by Section 17053.98.1.  order within each paragraph shall be determined by the Franchise Tax Board. 
(10) For taxable years beginning on or after January 1, 2027, the credit allowed by Section 17039.5.
(11) (b)  The credits provided by Notwithstanding the provisions of  Sections 17061 (relating to refunds pursuant to the Unemployment Insurance Code) and 19002 (relating to tax withholding). withholding), the credits provided in those sections shall be allowed in the order provided in paragraph (6) of subdivision (a). 
(b) The order within each paragraph of subdivision (a) shall be determined by the Franchise Tax Board.
(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 former  Section 17052.2 (relating to teacher retention tax credit, repealed on August 24, 2007). credit). 
(B) The credit allowed by former Section 17052.4 (relating to solar energy, repealed on December 1, 1989). 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, repealed on January 1, 1997). credit). 
(G) The credit allowed by former Section 17052.15 (relating to Los Angeles Revitalization Zone sales tax credit, repealed on December 1, 1998). 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, repealed on October 3, 1997). credit). 
(K) The credit allowed by former Section 17053.10 (relating to Los Angeles Revitalization Zone hiring credit, repealed on December 1, 1998). credit). 
(L) The credit allowed by former Section 17053.11 (relating to program area hiring credit, repealed on January 1, 1997). 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, repealed on December 1, 1998). credit). 
(N) The credit allowed by former  Section 17053.33 (relating to targeted tax area sales or use tax credit, repealed on December 1, 2015). credit). 
(O) The credit allowed by former  Section 17053.34 (relating to targeted tax area hiring credit, repealed on December 1, 2019). credit). 
(P) The credit allowed by former  Section 17053.49 (relating to qualified property, repealed on January 1, 2004). property). 
(Q) The credit allowed by Section 17053.51 (relating to career technical education campaign).
(Q) (R)  The credit allowed by former  Section 17053.70 (relating to enterprise zone sales or use tax credit, repealed on December 1, 2015). credit). 
(R) (S)  The credit allowed by former  Section 17053.74 (relating to enterprise zone hiring credit, repealed on December 1, 2019). credit). 
(S) (T)  The credit allowed by Section 17054 (relating to credits for personal exemption).
(T) (U)  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) (V)  The credit allowed by Section 17054.7 (relating to the credit for a senior head of household).
(V) (W)  The credit allowed by former Section 17057 (relating to clinical testing expenses, repealed on December 1, 1993). expenses). 
(W) (X)  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).
(AB) For taxable years beginning on or after January 1, 2014, the credit allowed by former Section 17053.86 (relating to the College Access Tax Credit Fund, repealed on December 1, 2017).
(AC) For taxable years beginning on or after January 1, 2017, the credit allowed by Section 17053.87 (relating to the College Access Tax Credit Fund).
(AD) For taxable years beginning on or after January 1, 2021, the credit allowed by Section 17052.10 (relating to the elective tax under the Small Business Relief Act).
(AE) For taxable years beginning on or after January 1, 2020, the credit allowed by Section 17053.98 (relating to the California Motion Picture and Television Production Credit).
(AF) For taxable years beginning on or after January 1, 2025, the credit allowed by Section 17053.98.1 (relating to the California Motion Picture and Television Production Credit).
(AG) For taxable years beginning on or after January 1, 2027, the credit allowed by Section 17039.5.
(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 before  prior to  being repealed or becoming inoperative.
(e) (1) Unless otherwise provided, if two or more taxpayers (other than spouses)  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 the taxpayer’s  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 spouses  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. A No  credit shall not  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 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 before  prior to  the close of that taxable year.
(2) For purposes of this subdivision, “eligible pass-thru 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 the credit is operative.
(3) This subdivision applies  shall apply  to credits that become inoperative on or after January 1, 2002. the operative date of the act adding this subdivision. 
(i) The amendments made to this section by Chapter 3 of the Statutes of 2022 shall apply as follows:
(1) The amendments to subdivisions (a), (e), and (h) shall be operative for taxable years beginning on or after January 1, 2022.
(2) The amendments to subdivision (c) shall be operative for taxable years beginning on or after January 1, 2021.
(j) The amendments made to this section by Chapter 56 of the Statutes of 2023 shall apply as follows:
(1) The amendments to paragraphs (3), (5), and (9) of subdivision (a) shall be operative for taxable years beginning on or after January 1, 2025.
(2) The amendments to subparagraph (AE) of paragraph (1) of subdivision (c) shall be operative for taxable years beginning on or after January 1, 2020.
(3) The amendments to subparagraph (AF) of paragraph (1) of subdivision (c) shall be operative for taxable years beginning on or after January 1, 2025.

SEC. 3.

 Section 17053.51 is added to the Revenue and Taxation Code, to read:

17053.51.
 (a) A qualified taxpayer shall be allowed a credit against the “net tax,” as defined in Section 17039, in an amount equal to the applicable percentage of the qualified cost of qualified property that is placed in service in this state. For purposes of this subdivision, the applicable percentage is:
(1) One percent for property placed in service on or after
January 1, 2007, and before January 1, 2009.
(2) Four percent for property placed in service on or after January 1, 2009, and before January 1, 2010.
(3) Seven percent for property placed in service on or after January 1, 2010.
(b) (1) For purposes of this section, “qualified cost” means any cost that satisfies each of the following conditions:
(A) Except as otherwise provided in this subparagraph, is a cost paid or incurred by the qualified taxpayer for the construction, reconstruction, or acquisition of qualified property on or after January 1, 2007, and prior to the date this section ceases to be operative under paragraph (2) of subdivision (i). In the case of any qualified property constructed, reconstructed, or acquired by the qualified taxpayer (or any person related to the qualified taxpayer within the meaning of Section 267 or 707 of the Internal Revenue Code) pursuant to a binding contract in existence on or prior to January 1, 2007, costs paid pursuant to that contract shall be subject to allocation as follows: contract costs shall be allocated to qualified property based on a ratio of costs actually paid prior to January 1, 2007, and total contract costs actually paid. “Cost paid” shall include, without limitation, contractual deposits, and option payments. To the extent of costs allocated, whether or not currently deductible or depreciable for tax purposes, to a period prior to January 1, 2007, the cost shall be deemed allocated to property acquired before January 1, 2007, and is thus not a “qualified cost.”
(B) Except as provided in paragraph (3) of subdivision (d) and subparagraph (B) of paragraph (4) of subdivision (d), is an amount upon which the qualified taxpayer has paid, directly or indirectly as a separately stated contract amount or as determined from the records of the qualified taxpayer, sales or use tax under Part 1 (commencing with Section 6001).
(C) Is an amount properly chargeable to the capital account of the qualified taxpayer.
(2) (A) For purposes of this subdivision, any contract entered into on or after January 1, 2007, that is a successor or replacement contract to a contract that was binding prior to January 1, 2007, shall be treated as a binding contract in existence prior to January 1, 2007.
(B) If a successor or replacement contract is entered into on or after January 1, 2007, and the subject of the successor or replacement contract relates both to amounts for the construction, reconstruction, or acquisition of qualified property described in the original binding contract and to costs for the construction, reconstruction, or acquisition of qualified property not described in the original binding contract, then the portion of those amounts described in the successor or replacement contract that were not described in the original binding contract shall not be treated as costs paid or incurred pursuant to a binding contract in existence on or prior to January 1, 2007, under subparagraph (A) of paragraph (1).
(3) (A) For purposes of this section, an option contract in existence prior to January 1, 2007, under which a qualified taxpayer (or any other person related to the qualified taxpayer within the meaning of Section 267 or 707 of the Internal Revenue Code) had an option to acquire qualified property, shall be treated as a binding contract under the rules in paragraph (2). For purposes of this subparagraph, an option contract shall not include an option under which the optionholder will forfeit an amount less than 10 percent of the fixed option price in the event the option is not exercised.
(B) For purposes of this section, a contract shall be treated as binding even if the contract is subject to a condition.
(c) (1) For purposes of this section, “qualified taxpayer” means any taxpayer that is both of the following:
(A) Engaged in those lines of business described in Codes 2011 to 3999, inclusive, or Codes 7371 to 7373, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition.
(B) Certified, in the form and manner prescribed by the State Department of Education, as a qualified participant in the Career Technical Education Campaign pursuant to Section 52337 of the Education Code for the taxable year for which a credit is claimed under this section.
(2) In the case of any passthrough entity, the determination of whether a taxpayer is a qualified taxpayer shall be made at the entity level and any credit under this section or Section 23651 shall be allowed to the passthrough entity and passed through to the partners or shareholders in accordance with applicable provisions of this part or Part 11 (commencing with Section 23001). For purposes of this paragraph, the term “passthrough entity” means any partnership or S corporation.
(3) The Franchise Tax Board may prescribe regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the effect of this section through splitups, shell corporations, partnerships, tiered ownership structures, sale-leaseback transactions, or otherwise.
(d) For purposes of this section, “qualified property” means property that is described as any of the following:
(1) Tangible personal property that is defined in Section 1245(a) of the Internal Revenue Code for use by a qualified taxpayer in those lines of business described in Codes 2011 to 3999, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, that is primarily used for any of the following:
(A) For the manufacturing, processing, refining, fabricating, or recycling of property, beginning at the point at which any raw materials are received by the qualified taxpayer and introduced into the process and ending at the point at which the manufacturing, processing, refining, fabricating, or recycling has altered tangible personal property to its completed form, including packaging, if required.
(B) In research and development.
(C) To maintain, repair, measure, or test any property described in this paragraph.
(D) For pollution control that meets or exceeds standards established by the state or by any local or regional governmental agency within the state.
(E) For recycling.
(2) Computers and computer peripheral equipment, as defined in Section 168(i)(2)(B) of the Internal Revenue Code, that is tangible personal property as defined in Section 1245(a) of the Internal Revenue Code for use by a qualified taxpayer in those lines of business described in SIC Codes 7371 to 7373, inclusive, of the SIC Manual, 1987 edition, that is primarily used to develop or manufacture prepackaged software or custom software prepared to the special order of the purchaser who uses the program to produce and sell or license copies of the program as prepackaged software.
(3) The value of any capitalized labor costs that are directly allocable to the construction or modification of property described in paragraph (1) or (2).
(4) In the case of any qualified taxpayer engaged in manufacturing activities described in SIC Code 357 or 367, those activities related to biotechnology described in SIC Code 8731, those activities related to biopharmaceutical establishments only that are described in SIC Codes 2833 to 2836, inclusive, those activities related to space vehicles and parts described in SIC Codes 3761 to 3769, inclusive, those activities related to space satellites and communications satellites and equipment described in SIC Codes 3663 and 3812, or those activities related to semiconductor equipment manufacturing described in SIC Code 3559, “qualified property” also includes the following:
(A) Special purpose buildings and foundations that are constructed or modified for use by the qualified taxpayer primarily in a manufacturing, processing, refining, or fabricating process, or as a research or storage facility primarily used in connection with a manufacturing process.
(B) The value of any capitalized labor costs that are directly allocable to the construction or modification of special purpose buildings and foundations that are used primarily in the manufacturing, processing, refining, or fabricating process, or as a research or storage facility primarily used in connection with a manufacturing process.
(C) (i) For purposes of this paragraph, “special purpose building and foundation” means only a building and the foundation immediately underlying the building that is specifically designed and constructed or reconstructed for the installation, operation, and use of specific machinery and equipment with a special purpose, which machinery and equipment, after installation, will become affixed to or a fixture of the real property, and the construction or reconstruction of which is specifically designed and used exclusively for the specified purposes as set forth in subparagraph (A).
(ii) A building is specifically designed and constructed or modified for a qualified purpose if it is not economical to design and construct the building for the intended purpose and then use the structure for a different purpose.
(iii) For purposes of clause (i) and clause (vi), a building is used exclusively for a qualified purpose only if its use does not include a use for which it was not specifically designed and constructed or modified. Incidental use of a building for nonqualified purposes does not preclude the building from being a special purpose building. “Incidental use” means a use which is both related and subordinate to the qualified purpose. It will be conclusively presumed that a use is not subordinate if more than one-third of the total usable volume of the building is devoted to a use which is not a qualified purpose.
(iv) In the event an entire building does not qualify as a special purpose building, a taxpayer may establish that a portion of a building, and the foundation immediately underlying the portion, qualifies for treatment as a special purpose building and foundation if the portion satisfies all of the definitional provisions in this subparagraph.
(v) To the extent that a building is not a special purpose building as defined above, but a portion of the building qualifies for treatment as a special purpose building, then all equipment which exclusively supports the qualified purpose occurring within that portion and which would qualify as Section 1245 of the Internal Revenue Code property if it were not a fixture or affixed to the building shall be treated as a cost of the portion of the building which qualifies for treatment as a special purpose building.
(vi) Buildings and foundations which do not meet the definition of a special purpose building and foundation set forth above include, but are not limited to: buildings designed and constructed or reconstructed principally to function as a general purpose manufacturing, industrial, or commercial building; research facilities that are used primarily prior to or after, or prior to and after, the manufacturing process; or storage facilities that are used primarily prior to or after, or prior to and after, completion of the manufacturing process. A research facility shall not be considered to be used primarily prior to or after, or prior to and after, the manufacturing process if its purpose and use relate exclusively to the development and regulatory approval of the manufacturing process for specific biopharmaceutical products. A research facility which is used primarily in connection with the discovery of an organism from which a biopharmaceutical product or process is developed does not meet the requirements of the preceding sentence.
(5) Subject to the provisions in subparagraph (B) of paragraph (1) of subdivision (b), qualified property also includes computer software that is primarily used for those purposes set forth in paragraph (1) or (2) of this subdivision.
(6) Qualified property does not include any of the following:
(A) Furniture.
(B) Facilities used for warehousing purposes after completion of the manufacturing process.
(C) Inventory.
(D) Equipment used in the extraction process.
(E) Equipment used to store finished products that have completed the manufacturing process.
(F) Any tangible personal property that is used in administration, general management, or marketing.
(e) For purposes of this section:
(1) “Biopharmaceutical 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 which make use of chemical compounds to produce commercial products.
(2) “Fabricating” means to make, build, create, produce, or assemble components or property to work in a new or different manner.
(3) “Manufacturing” means the activity of converting or conditioning property by changing the form, composition, quality, or character of the property for ultimate sale at retail or use in the manufacturing of a product to be ultimately sold at retail. Manufacturing includes any improvements to tangible personal property that result in a greater service life or greater functionality than that of the original property.
(4) “Other biotechnology activities” means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.
(5) “Primarily” means tangible personal property used 50 percent or more of the time in an activity described in subdivision (d).
(6) “Process” means the period beginning at the point at which any raw materials are received by the qualified taxpayer and introduced into the manufacturing, processing, refining, fabricating, or recycling activity of the qualified taxpayer and ending at the point at which the manufacturing, processing, refining, fabricating, or recycling activity of the qualified taxpayer has altered tangible personal property to its completed form, including packaging, if required. Raw materials shall be considered to have been introduced into the process when the raw materials are stored on the same premises where the qualified taxpayer’s manufacturing, processing, refining, fabricating, or recycling activity is conducted. Raw materials that are stored on premises other than where the qualified taxpayer’s manufacturing, processing, refining, fabricating, or recycling activity is conducted, shall not be considered to have been introduced into the manufacturing, processing, refining, fabricating, or recycling process.
(7) “Processing” means the physical application of the materials and labor necessary to modify or change the characteristics of property.
(8) “Refining” means the process of converting a natural resource to an intermediate or finished product.
(9) “Research and development” means those activities that are described in Section 174 of the Internal Revenue Code or in any regulations thereunder.
(10) “Small business” means a qualified taxpayer that meets any of the following requirements during the income year for which the credit is allowed:
(A) Has gross receipts of less than fifty million dollars ($50,000,000).
(B) Has net assets of less than fifty million dollars ($50,000,000).
(C) Has a total credit of less than one million dollars ($1,000,000).
(D) Is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the SIC Manual published by the United States Office of Management and Budget, 1987 edition, and has not received regulatory approval for any product from the United States Food and Drug Administration.
(f) The credit allowed under subdivision (a) shall apply to qualified property that is acquired by, or subject to lease, by a qualified taxpayer, subject to the following special rules:
(1) A lessor of qualified property, irrespective of whether the lessor is a qualified taxpayer, shall not be allowed the credit provided under subdivision (a) with respect to any qualified property leased to another qualified taxpayer.
(2) For purposes of paragraphs (2) and (3) of subdivision (b), “binding contract” shall include any lease agreement with respect to the qualified property.
(3) (A) For purposes of determining the qualified cost paid or incurred by a lessee in any leasing transaction that is not treated as a sale under Part 1 (commencing with Section 6001), the following rules shall apply:
(i) Except as provided by subparagraph (C) of this paragraph, subparagraphs (A) and (C) of paragraph (1) of subdivision (b) shall not apply.
(ii) Except as provided in subparagraph (B) and clause (iii), the “qualified cost” upon which the lessee shall compute the credit provided under this section shall be equal to the original cost to the lessor (within the meaning of Section 18031) of the qualified property that is the subject of the lease.
(iii) The requirement of subparagraph (B) of paragraph (1) of subdivision (b) shall be treated as satisfied only if the lessor has made a timely election under either Section 6094.1 or subdivision (d) of Section 6244 and has paid sales tax reimbursement or use tax measured by the purchase price of the qualified property (within the meaning of paragraph (5) of subdivision (g) of Section 6006). For purposes of this subdivision, the amount of original cost to the lessor which may be taken into account under clause (ii) shall not exceed the purchase price upon which sales tax reimbursement or use tax has been paid under the preceding sentence.
(iv) With respect to leases entered into between January 1, 2007, and the effective date of this clause, the lessor may elect to pay use tax measured by the purchase price of the property by reporting and paying the tax with the return of the lessor for the fourth calendar quarter of 2007. In computing the use tax under the preceding sentence, a credit shall be allowed under Part 1 (commencing with Section 6001) for all sales or use tax previously paid on the lease.
(B) For purposes of applying subparagraph (A) only, the following special rules shall apply:
(i) The original cost to the lessor of the qualified property shall be reduced by the amount of any original cost of that property that was taken into account by any predecessor lessee in computing the credit allowable under this section.
(ii) Clause (i) shall not apply in any case where the predecessor lessee was required to recapture the credit provided under this section pursuant to subdivision (g).
(iii) For purposes of this section only, in any case where a successor lessor has acquired qualified property from a predecessor lessor in a transaction not treated as a sale under Part 1 (commencing with Section 6001), the original cost to the successor lessor of the qualified property shall be reduced by the amount of the original cost of the qualified property that was taken into account by any lessee of the predecessor lessor in computing the credit allowable under this section.
(C) In determining the original cost of any qualified property under this paragraph, only amounts paid or incurred by the lessor on or after January 1, 2007, and prior to the date this section ceases to be operative under paragraph (2) of subdivision (i), shall be taken into account. In the case of any qualified property constructed, reconstructed, or acquired by a lessor pursuant to a binding contract in existence on or prior to January 1, 2007, the allocation rule specified in subparagraph (A) of paragraph (1) of subdivision (b) shall apply in determining the original cost to the lessor of qualified property.
(D) Notwithstanding subparagraph (A), in the case of any leasing transaction for which the lessee is allowed the credit under this section and thereafter the lessee (or any party related to the lessee within the meaning of Section 267 or 318 of the Internal Revenue Code) acquires the qualified property from the lessor (or any successor lessor), within one year from the date the qualified property is first used by the lessee under the terms of the lease, the lessee’s (or related party’s) acquisition of the qualified property from the lessor (or successor lessor) shall be treated as a disposition by the lessee of the qualified property that was subject to the lease under subdivision (g).
(4) For purposes of determining the qualified cost paid or incurred by a lessee in any leasing transaction that is treated as a sale under Part 1 (commencing with Section 6001), the following rules shall apply:
(A) Subparagraph (A) of paragraph (1) of subdivision (b) shall be applied by substituting the term “purchase” for the term “construction, reconstruction, or acquisition.”
(B) Subparagraph (C) of paragraph (1) of subdivision (b) shall apply.
(C) The requirement of subparagraph (B) of paragraph (1) of subdivision (b) shall be treated as satisfied at the time that either the lessor or the qualified taxpayer pays sales or use tax under Part 1 (commencing with Section 6001).
(5) (A) In the case of any leasing transaction described in paragraph (3), the lessor shall provide a statement to the lessee specifying the amount of the lessor’s original cost of the qualified property and the amount of that cost upon which a sales or use tax was paid within 45 days after the close of the lessee’s taxable year in which the credit is allowable to the lessee under this section.
(B) The statement required under subparagraph (A) shall be made available to the Franchise Tax Board upon request.
(g) No credit shall be allowed if the qualified property is removed from the state, is disposed of to an unrelated party, or is used for any purpose not qualifying for the credit provided in this section in the same taxable year in which the qualified property is first placed in service in this state. If any qualified property for which a credit is allowed pursuant to this section is thereafter removed from this state, disposed of to an unrelated party, or used for any purpose not qualifying for the credit provided in this section within one year from the date the qualified property is first placed in service in this state, the amount of the credit allowed by this section for that qualified property shall be recaptured by adding that credit amount to the net tax of the qualified taxpayer for the taxable year in which the qualified property is disposed of, removed, or put to an ineligible use.
(h) 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 year, and succeeding years as follows:
(1) Except as provided in paragraph (2), for the seven succeeding years if necessary, until the credit is exhausted.
(2) In the case of a small business, for the nine succeeding years, if necessary, until the credit is exhausted.
(i) The credit under this section shall be known as the “Career Technical Education Campaign” credit or as the “CTEC” credit.
(j) This section shall become operative on January 1, 2007, and remain in effect only until January 1, 2014, and as of that date is repealed.
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” shall  also includes include  all of the following:
(1) The tax on limited partnerships, imposed under Section 17935,  17935 or Section 23081,  the tax on limited liability companies, imposed under Section 17941,  17941 or Section 23091,  and the tax on registered limited liability partnerships and foreign limited liability partnerships imposed under Section 17948. 17948 or Section 23097. 
(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  shall be  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, except the credit described in paragraph (5). 23455. 
(5) For taxable years beginning on or after January 1, 2025, the credit allowed by Section 23698.1.
(6) For taxable years beginning on or after January 1, 2027, the credit allowed by Section 23036.5.
(7) (5)  Credits for taxes withheld under Section 18662.
(d) Notwithstanding any other provision of this part, each of the following applies: shall be applicable: 
(1) A No  credit may not  shall  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  For each taxable year beginning on or after January 1, 1994, 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  The  credit allowed by Section 23685 23651  (relating to qualified motion pictures). career technical education campaign). 
(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).
(U) For taxable years beginning on or after January 1, 2014, the credit allowed by Section 23686 (relating to the College Access Tax Credit Fund).
(V) For taxable years beginning on or after January 1, 2017, the credit allowed by Section 23687 (relating to the College Access Tax Credit Fund).
(W) For taxable years beginning on or after January 1, 2020, and before January 1, 2031, the credit allowed by Section 23636 (relating to the new advanced strategic aircraft credit).
(X) For taxable years beginning on or after January 1, 2020, the credit allowed by Section 23698 (relating to the California Motion Picture and Television Production Credit).
(Y) For taxable years beginning on or after January 1, 2025, the credit allowed by Section 23698.1 (relating to the California Motion Picture and Television Production Credit).
(Z) For taxable years beginning on or after January 1, 2027, the credit allowed by Section 23036.5.
(2) A No  credit against the tax may not  shall  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  shall be  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  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.
(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  shall be  eligible to receive the tax credit in proportion to their its  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  shall be  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  shall be applied  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  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 “tax,” as defined in subdivision (a), for the taxable year is  shall be  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 No  credit is not shall be  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 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-thru 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  shall apply  to credits that become inoperative on or after the operative date of the act adding this subdivision.
(k) The amendments made to this section by Chapter 56 of the Statutes of 2023 shall apply as follows:
(1) The amendments to subdivision (c) shall be operative for taxable years beginning on or after January 1, 2025.
(2) The amendments to subparagraph (X) of paragraph (1) of subdivision (d) shall be operative for taxable years beginning on or after January 1, 2020.
(3) The amendments to subparagraph (Y) of paragraph (1) of subdivision (d) shall be operative for taxable years beginning on or after January 1, 2025.

SEC. 5.

 Section 23651 is added to the Revenue and Taxation Code, to read:

23651.
 (a) A qualified taxpayer shall be allowed a credit against the “tax,” as defined in Section 23036, in an amount equal to 6 percent of the qualified cost of qualified property that is placed in service in this state. For purposes of this subdivision, the applicable percentage is:
(1) One percent for property placed in service on or after
January 1, 2007, and before January 1, 2009.
(2) Four percent for property placed in service on or after January 1, 2009, and before January 1, 2010.
(3) Seven percent for property placed in service on or after January 1, 2010.
(b) (1) For purposes of this section, “qualified cost” means any cost that satisfies each of the following conditions:
(A) Except as otherwise provided in this subparagraph, is a cost paid or incurred by the qualified taxpayer for the construction, reconstruction, or acquisition of qualified property on or after January 1, 2007, and prior to the date this section ceases to be operative under paragraph (2) of subdivision (i). In the case of any qualified property constructed, reconstructed, or acquired by the qualified taxpayer (or any person related to the qualified taxpayer within the meaning of Section 267 or 707 of the Internal Revenue Code) pursuant to a binding contract in existence on or prior to January 1, 2007, costs paid pursuant to that contract shall be subject to allocation as follows: contract costs shall be allocated to qualified property based on a ratio of costs actually paid prior to January 1, 2007, and total contract costs actually paid. “Cost paid” shall include, without limitation, contractual deposits and option payments. To the extent of cost allocated, whether or not currently deductible or depreciable for tax purposes, to a period prior to January 1, 2007, the cost shall be deemed allocated to property acquired before January 1, 2007, and is thus not a “qualified cost.”
(B) Except as provided in paragraph (3) of subdivision (d) and subparagraph (B) of paragraph (4) of subdivision (d), is an amount upon which the qualified taxpayer has paid, directly or indirectly, as a separately stated contract amount or as determined from the records of the qualified taxpayer, sales or use tax under Part 1 (commencing with Section 6001).
(C) Is an amount properly chargeable to the capital account of the qualified taxpayer.
(2) (A) For purposes of this subdivision, any contract entered into on or after January 1, 2007, that is a successor or replacement contract to a contract that was binding prior to January 1, 2007, shall be treated as a binding contract in existence prior to January 1, 2007.
(B) If a successor or replacement contract is entered into on or after January 1, 2007, and the subject of the successor or replacement contract relates both to amounts for the construction, reconstruction, or acquisition of qualified property described in the original binding contract and to costs for the construction, reconstruction, or acquisition of qualified property not described in the original binding contract, then the portion of those amounts described in the successor or replacement contract that were not described in the original binding contract shall not be treated as costs paid or incurred pursuant to a binding contract in existence on or prior to January 1, 2007, under subparagraph (A) of paragraph (1).
(3) (A) For purposes of this section, an option contract in existence prior to January 1, 2007, under which a qualified taxpayer (or any other person related to the qualified taxpayer within the meaning of Section 267 or 707 of the Internal Revenue Code) had an option to acquire qualified property, shall be treated as a binding contract under the rules in paragraph (2). For purposes of this subparagraph, an option contract shall not include an option under which the optionholder will forfeit an amount less than 10 percent of the fixed option price in the event the option is not exercised.
(B) For purposes of this section, a contract shall be treated as binding even if the contract is subject to a condition.
(c) (1) For purposes of this section, “qualified taxpayer” means any taxpayer that is both of the following:
(A) Engaged in those lines of business described in Codes 2011 to 3999, inclusive, or Codes 7371 to 7373, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition.
(B) Certified, in the form and manner prescribed by the State Department of Education, as a qualified participant in the Career Technical Education Campaign pursuant to Section 52337 of the Education Code for the taxable year for which a credit is claimed under this section.
(2) In the case of any passthrough entity, the determination of whether a taxpayer is a qualified taxpayer under this section or Section 17053.51 shall be allowed to the passthrough entity and passed through to the partners or shareholders in accordance with applicable provisions of Part 10 (commencing with Section 17001) or this part. For purposes of this paragraph, the term “passthrough entity” means any partnership or S corporation.
(3) The Franchise Tax Board may prescribe regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the effect of this section through splitups, shell corporations, partnerships, tiered ownership structures, sale-leaseback transactions, or otherwise.
(d) For purposes of this section, “qualified property” means property that is described as any of the following:
(1) Tangible personal property that is defined in Section 1245(a) of the Internal Revenue Code for use by a qualified taxpayer in those lines of business described in Codes 2011 to 3999, inclusive, of the SIC Manual published by the United States Office of Management and Budget, 1987 edition, that is primarily used for any of the following:
(A) For the manufacturing, processing, refining, fabricating, or recycling of property, beginning at the point at which any raw materials are received by the qualified taxpayer and introduced into the process and ending at the point at which the manufacturing, processing, refining, fabricating, or recycling has altered tangible personal property to its completed form, including packaging, if required.
(B) In research and development.
(C) To maintain, repair, measure, or test any property described in this paragraph.
(D) For pollution control that meets or exceeds standards established by the state or by any local or regional governmental agency within the state.
(E) For recycling.
(2) Computers and computer peripheral equipment, as defined in Section 168(i)(2)(B) of the Internal Revenue Code, that is tangible personal property as defined in Section 1245(a) of the Internal Revenue Code for use by a qualified taxpayer in those lines of business described in SIC Codes 7371 to 7373, inclusive, of the SIC Manual, 1987 edition, that is primarily used to develop or manufacture prepackaged software or custom software prepared to the special order of the purchaser who uses the program to produce and sell or license copies of the program as prepackaged software.
(3) The value of any capitalized labor costs that are directly allocable to the construction or modification of property described in paragraph (1) or (2).
(4) In the case of any qualified taxpayer engaged in manufacturing activities described in SIC Code 357 or 367, those activities related to biotechnology described in SIC Code 8731, those activities related to biopharmaceutical establishments only that are described in SIC Codes 2833 to 2836, inclusive, those activities related to space vehicles and parts described in SIC Codes 3761 to 3769, inclusive, those activities related to space satellites and communications satellites and equipment described in SIC Codes 3663 and 3812, or those activities related to semiconductor equipment manufacturing described in SIC Code 3559, “qualified property” also includes the following:
(A) Special purpose buildings and foundations that are constructed or modified for use by the qualified taxpayer primarily in a manufacturing, processing, refining, or fabricating process, or as a research or storage facility primarily used in connection with a manufacturing process.
(B) The value of any capitalized labor costs that are directly allocable to the construction or modification of special purpose buildings and foundations that are used primarily in the manufacturing, processing, refining, or fabricating process, or as a research or storage facility primarily used in connection with a manufacturing process.
(C) (i) For purposes of this paragraph, “special purpose building and foundation” means only a building and the foundation immediately underlying the building that is specifically designed and constructed or reconstructed for the installation, operation, and use of specific machinery and equipment with a special purpose, which machinery and equipment, after installation, will become affixed to or a fixture of the real property, and the construction or reconstruction of which is specifically designed and used exclusively for the specified purposes as set forth in subparagraph (A).
(ii) A building is specifically designed and constructed or modified for a qualified purpose if it is not economical to design and construct the building for the intended purpose and then use the structure for a different purpose.
(iii) For purposes of clause (i) and clause (vi), a building is used exclusively for a qualified purpose only if its use does not include a use for which it was not specifically designed and constructed or modified. Incidental use of a building for nonqualified purposes does not preclude the building from being a special purpose building. “Incidental use” means a use which is both related and subordinate to the qualified purpose. It will be conclusively presumed that a use is not subordinate if more than one-third of the total usable volume of the building is devoted to a use which is not a qualified purpose.
(iv) In the event an entire building does not qualify as a special purpose building, a taxpayer may establish that a portion of a building, and the foundation immediately underlying the portion, qualifies for treatment as a special purpose building and foundation if the portion satisfies all of the definitional provisions in this subparagraph.
(v) To the extent that a building is not a special purpose building as defined above, but a portion of the building qualifies for treatment as a special purpose building, then all equipment which exclusively supports the qualified purpose occurring within that portion and which would qualify as Internal Revenue Code Section 1245 property if it were not a fixture or affixed to the building shall be treated as a cost of the portion of the building which qualifies for treatment as a special purpose building.
(vi) Buildings and foundations which do not meet the definition of a special purpose building and foundation set forth above include, but are not limited to: buildings designed and constructed or reconstructed principally to function as a general purpose manufacturing, industrial, or commercial building; research facilities that are used primarily prior to or after, or prior to and after, the manufacturing process; or storage facilities that are used primarily prior to or after, or prior to and after, completion of the manufacturing process. A research facility shall not be considered to be used primarily prior to or after, or prior to and after, the manufacturing process if its purpose and use relate exclusively to the development and regulatory approval of the manufacturing process for specific biopharmaceutical products. A research facility which is used primarily in connection with the discovery of an organism from which a biopharmaceutical product or process is developed does not meet the requirements of the preceding sentence.
(5) Subject to the provisions in subparagraph (B) of paragraph (1) of subdivision (b), qualified property also includes computer software that is primarily used for those purposes set forth in paragraph (1) or (2) of this subdivision.
(6) Qualified property does not include any of the following:
(A) Furniture.
(B) Facilities used for warehousing purposes after completion of the manufacturing process.
(C) Inventory.
(D) Equipment used in the extraction process.
(E) Equipment used to store finished products that have completed the manufacturing process.
(F) Any tangible personal property that is used in administration, general management, or marketing.
(e) For purposes of this section:
(1) “Biopharmaceutical 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 which make use of chemical compounds to produce commercial products.
(2) “Fabricating” means to make, build, create, produce, or assemble components or property to work in a new or different manner.
(3) “Manufacturing” means the activity of converting or conditioning property by changing the form, composition, quality, or character of the property for ultimate sale at retail or use in the manufacturing of a product to be ultimately sold at retail. Manufacturing includes any improvements to tangible personal property that result in a greater service life or greater functionality than that of the original property.
(4) “Other biotechnology activities” means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.
(5) “Primarily” means tangible personal property used 50 percent or more of the time in an activity described in subdivision (d).
(6) “Process” means the period beginning at the point at which any raw materials are received by the qualified taxpayer and introduced into the manufacturing, processing, refining, fabricating, or recycling activity of the qualified person and ending at the point at which the manufacturing, processing, refining, fabricating, or recycling activity of the qualified taxpayer has altered tangible personal property to its completed form, including packaging, if required. Raw materials shall be considered to have been introduced into the process when the raw materials are stored on the same premises where the qualified taxpayer’s manufacturing, processing, refining, fabricating, or recycling activity is conducted. Raw materials that are stored on premises other than where the qualified taxpayer’s manufacturing, processing, refining, fabricating, or recycling activity is conducted, shall not be considered to have been introduced into the manufacturing, processing, refining, fabricating, or recycling process.
(7) “Processing” means the physical application of the materials and labor necessary to modify or change the characteristics of property.
(8) “Refining” means the process of converting a natural resource to an intermediate or finished product.
(9) “Research and development” means those activities that are described in Section 174 of the Internal Revenue Code or in any regulations thereunder.
(10) “Small business” means a qualified taxpayer that meets any of the following requirements during the taxable year for which the credit is allowed:
(A) Has gross receipts of less than fifty million dollars ($50,000,000).
(B) Has net assets of less than fifty million dollars ($50,000,000).
(C) Has a total credit of less than one million dollars ($1,000,000).
(D) Is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and has not received regulatory approval for any product from the United States Food and Drug Administration.
(f) The credit allowed under subdivision (a) shall apply to qualified property that is acquired by or subject to lease by a qualified taxpayer, subject to the following special rules:
(1) A lessor of qualified property, irrespective of whether the lessor is a qualified taxpayer, shall not be allowed the credit provided under subdivision (a) with respect to any qualified property leased to another qualified taxpayer.
(2) For purposes of paragraphs (2) and (3) of subdivision (b), “binding contract” shall include any lease agreement with respect to the qualified property.
(3) (A) For purposes of determining the qualified cost paid or incurred by a lessee in any leasing transaction that is not treated as a sale under Part 1 (commencing with Section 6001), the following rules shall apply:
(i) Except as provided by subparagraph (C) of this paragraph, subparagraphs (A) and (C) of paragraph (1) of subdivision (b) shall not apply.
(ii) Except as provided in subparagraph (B) and clause (iii), the “qualified cost” upon which the lessee shall compute the credit provided under this section shall be equal to the original cost to the lessor (within the meaning of Section 18031) of the qualified property that is the subject of the lease.
(iii) Except as provided in clause (iv), the requirement of subparagraph (B) of paragraph (1) of subdivision (b) shall be treated as satisfied only if the lessor has made a timely election under either Section 6094.1 or subdivision (d) of Section 6244 and has paid sales tax reimbursement or use tax measured by the purchase price of the qualified property (within the meaning of paragraph (5) of subdivision (g) of Section 6006). For purposes of this subdivision and clause (iv), the amount of original cost to the lessor which may be taken into account under clause (ii) shall not exceed the purchase price upon which sales tax reimbursement or use tax has been paid under the preceding sentence or under clause (iv).
(iv) With respect to leases entered into between January 1, 2007, and the effective date of this clause, the lessor may elect to pay use tax measured by the purchase price of the property by reporting and paying the tax with the return of the lessor for the fourth calendar quarter of 2007. In computing the use tax under the preceding sentence, a credit shall be allowed under Part 1 (commencing with Section 6001) for all sales or use tax previously paid on the lease.
(B) For purposes of applying subparagraph (A) only, the following special rules shall apply:
(i) The original cost to the lessor of the qualified property shall be reduced by the amount of any original cost of that property that was taken into account by any predecessor lessee in computing the credit allowable under this section.
(ii) Clause (i) shall not apply in any case where the predecessor lessee was required to recapture the credit provided under this section pursuant to subdivision (g).
(iii) For purposes of this section only, in any case where a successor lessor has acquired qualified property from a predecessor lessor in a transaction not treated as a sale under Part 1 (commencing with Section 6001), the original cost to the successor lessor of the qualified property shall be reduced by the amount of the original cost of the qualified property that was taken into account by any lessee of the predecessor lessor in computing the credit allowable under this section.
(C) In determining the original cost of any qualified property under this paragraph, only amounts paid or incurred by the lessor on or after January 1, 2007, and prior to the date this section ceases to be operative under paragraph (2) of subdivision (i), shall be taken into account. In the case of any qualified property constructed, reconstructed, or acquired by a lessor pursuant to a binding contract in existence on or prior to January 1, 2007, the allocation rule specified in subparagraph (A) of paragraph (1) of subdivision (b) shall apply in determining the original cost to the lessor of qualified property.
(D) Notwithstanding subparagraph (A), in the case of any leasing transaction for which the lessee is allowed the credit under this section and thereafter the lessee (or any party related to the lessee within the meaning of Section 267 or 318 of the Internal Revenue Code) acquires the qualified property from the lessor (or any successor lessor) within one year from the date the qualified property is first used by the lessee under the terms of the lease, the lessee’s (or related party’s) acquisition of the qualified property from the lessor (or successor lessor) shall be treated as a disposition by the lessee of the qualified property that was subject to the lease under subdivision (g).
(4) For purposes of determining the qualified cost paid or incurred by a lessee in any leasing transaction that is treated as a sale under Part 1 (commencing with Section 6001), the following rules shall apply:
(A) Subparagraph (A) of paragraph (1) of subdivision (b) shall be applied by substituting the term “purchase” for the term “construction, reconstruction, or acquisition.”
(B) Subparagraph (C) of paragraph (1) of subdivision (b) shall apply.
(C) The requirement of subparagraph (B) of paragraph (1) of subdivision (b) shall be treated as satisfied at the time that either the lessor or the qualified taxpayer pays sales or use tax under Part 1 (commencing with Section 6001).
(5) (A) In the case of any leasing transaction described in paragraph (3), the lessor shall provide a statement to the lessee specifying the amount of the lessor’s original cost of the qualified property and the amount of that cost upon which a sales or use tax was paid within 45 days after the close of the lessee’s taxable year in which the credit is allowable to the lessee under this section.
(B) The statement required under subparagraph (A) shall be made available to the Franchise Tax Board upon request.
(g) No credit shall be allowed if the qualified property is removed from the state, is disposed of to an unrelated party, or is used for any purpose not qualifying for the credit provided in this section in the same taxable year in which the qualified property is first placed in service in this state. If any qualified property for which a credit is allowed pursuant to this section is thereafter removed from this state, disposed of to an unrelated party, or used for any purpose not qualifying for the credit provided in this section within one year from the date the qualified property is first placed in service in this state, the amount of the credit allowed by this section for that qualified property shall be recaptured by adding that credit amount to the net tax of the qualified taxpayer for the taxable year in which the qualified property is disposed of, removed, or put to an ineligible use.
(h) 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 as follows:
(1) Except as provided in paragraph (2), for the seven succeeding years if necessary, until the credit is exhausted.
(2) In the case of a small business, for the nine succeeding years, if necessary, until the credit is exhausted.
(i) The credit under this section shall be known as the “Career Technical Education Campaign” credit or as the “CTEC” credit.
(j) This section shall become operative on January 1, 2007, and remain in effect only until January 1, 2014, and as of that date is repealed.
SEC. 6.
 The Regents of the University of California, in consultation with the State Department of Education and the Franchise Tax Board, and any other organization the university deems appropriate, is requested to conduct an evaluation of the educational and economic effectiveness of the Career Technical Education Campaign credit. It is the desire of the Legislature that the study utilize data from the first four years of the credit’s existence and that the evaluation be provided by December 1, 2012, to the Governor, the Superintendent of Public Instruction, the Franchise Tax Board, the Senate Committee on Revenue and Taxation, the Assembly Committee on Revenue and Taxation, the Senate Committee on Education, and the Assembly Committee on Education.
SEC. 7.
 This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.