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AB-222 Income taxes: net operating losses: active solar energy systems.(2021-2022)

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Date Published: 03/15/2021 09:00 PM
AB222:v98#DOCUMENT

Amended  IN  Assembly  March 15, 2021

CALIFORNIA LEGISLATURE— 2021–2022 REGULAR SESSION

Assembly Bill
No. 222


Introduced by Assembly Member Blanca Rubio

January 11, 2021


An act to add Sections 17276.24 and 24416.24 to the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


AB 222, as amended, Blanca Rubio. Income taxes: net operating losses: active solar energy systems.
Existing law, the Personal Income Tax Law and Corporation Tax Law, in modified conformity with federal income tax laws, generally allows various deductions in computing the income that is subject to taxes imposed by those laws, including a deduction for a net operating loss, as specified. Existing law suspends the deduction for a net operating loss, as specified, for taxable years beginning on or after January 1, 2020, and before January 1, 2023. Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve, detailed performance indicators, and data collection requirements.
This bill, for taxable years beginning on and after January 1, 2023, would authorize a net operating loss carryback, as described, for a net operating loss or carryover of net operating loss for which a deduction was suspended as described above for a qualified taxpayer. The bill would define a qualified taxpayer “qualified taxpayer as a taxpayer that was engaged in the business of owning, operating, or constructing active solar energy systems in the state and that completed a specified substantial sale of fixed assets or other property held or used in the regular course of their trade or business during the taxable year beginning on or after January 1, 2020, but before January 1, 2021. The bill also would include additional information required for any bill authorizing a new tax expenditure.
This bill would take effect immediately as a tax levy.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

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


SECTION 1.

 The Legislature finds and declares all of the following:
(a) In early 2020, the COVID-19 viral pandemic reached California. On March 4, Governor Gavin Newsom declared a state of emergency on account of that pandemic. COVID-19, and the government measures taken to contain its spread, resulted in an unprecedented economic downturn.
(b) In anticipation of revenue impacts likely to result from the pandemic, California enacted Chapter 8 of the Statutes of 2020 (Assembly Bill No. 85) to make various adjustments to the Revenue and Taxation Code, including suspending net operating loss deductions for the 2020, 2021, and 2022 taxable years. Net operating loss deductions reflect the tax policy of matching expenses to income that for many businesses occurs over several years of the business cycle. Balancing the state’s need for revenues in the short term without abandoning this tax policy objective, Chapter 8 of the Statutes of 2020 extended commensurately the years to which a suspended net operating loss could be carried over to offset future income.
(c) For some taxpayers, however, the extension of carryover periods provides no ultimate relief because their losses, accumulated over years of investment, cannot be used to offset a substantial nonrecurring gain, such as in the sale of a significant portion of a business enterprise. For such taxpayers, extending the period of carryover for the denied net operating losses provides no matching of investment expense to income recognition because their subsequent income will be insufficient to offset the accumulated and carried over net operating losses.
(d) For Californians who invested significant resources to expand the state’s renewable energy capacity, the net operating loss suspension is particularly acute. Having expended years of time, energy, and capital in constructing renewable energy resources contributing to meeting California’s ambitious goals for a sustainable energy future, culminating in a substantial nonrecurring gain on the sale of those operations, the suspension of the net operating loss provisions impedes their ability to match costs and income, and thereby pay no more than their fair share.
(e) In order to ensure that California’s acute revenue needs are satisfied while also ensuring these taxpayers are not unfairly taxed, it is the intent of the Legislature to authorize qualified taxpayers, beginning on January 1, 2023, to carry back net operating losses denied by Chapter 8 of the Statutes of 2020 (Assembly Bill No. 85) to the 2020, 2021, and 2022 taxable years.

SEC. 2.

 Section 17276.24 is added to the Revenue and Taxation Code, to read:

17276.24.
 (a) Notwithstanding any other law, for taxable years beginning on and after January 1, 2023, for a qualified taxpayer, a net operating loss or carryover of net operating loss for which a deduction was denied by subdivision (a) of Section 17276.23 shall be a net operating loss carryback to each of the three preceding taxable years.
(b) For purposes of this section, the following shall apply:
(1) “Active solar energy system” has the same meaning as in Section 73.
(2) (A) “Qualified taxpayer” means a taxpayer that was engaged in the business of owning, operating, or constructing active solar energy systems in this state for during any portion of the years in which a deduction was denied by subdivision (a) of Section 17276.23, and that completed a substantial sale of fixed assets or other property held or used in the regular course of their trade or business business, including the sale of ownership interests in a legal entity, during the taxable year beginning on or after January 1, 2020, but before January 1, 2021.
(B) In the case of a pass-thru entity, the determination of whether a taxpayer is a qualified taxpayer under this section shall be made at the entity level and any carryback of net operating loss under this section shall be passed through to the partners or shareholders in accordance with the applicable provisions of Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001). For purposes of this paragraph, “pass-thru entity” means any entity taxed as a partnership or “S” corporation.
(3) “Substantial sale” means a sale that one or more sales in which the total amount realized exceeds 5 percent of the taxpayer’s gross receipts for the taxable year.
(c) (1) For the purposes of complying with Section 41, with respect to this section and Section 24416.24, the Legislature finds and declares that the purposes, goals, and objectives of this measure are to resolve a misalignment of expenses and income created by Chapter 8 of the Statutes of 2020 (Assembly Bill 85), which cannot be remedied by an extension of the carryover term of net operating losses suspended.
(2) On or before January 1, 2023, the Franchise Tax Board, notwithstanding Section 19542, shall provide the estimated General Fund impact of this section and Section 24416.24 to the Legislature and the relevant committees in a report, submitted pursuant to Section 9795 of the Government Code.

SEC. 3.

 Section 24416.24 is added to the Revenue and Taxation Code, to read:

24416.24.
 (a) Notwithstanding any other law, for taxable years beginning on and after January 1, 2023, for a qualified taxpayer, a net operating loss or carryover of net operating loss for which a deduction was denied by subdivision (a) of Section 24416.23 shall be a net operating loss carryback to each of the three preceding taxable years.
(b) For purposes of this section, the following shall apply:
(1) “Active solar energy system” has the same meaning as in Section 73.
(2) (A) “Qualified taxpayer” means a taxpayer that was engaged in the business of owning, operating, or constructing active solar energy systems in this state for during any portion of the years in which a deduction was denied by subdivision (a) of Section 24416.23, and that completed a substantial sale of fixed assets or other property held or used in the regular course of their trade or business business, including the sale of ownership interests in a legal entity, during the taxable year beginning on or after January 1, 2020, but before January 1, 2021.
(B) In the case of a pass-thru entity, the determination of whether a taxpayer is a qualified taxpayer under this section shall be made at the entity level and any carryback of net operating loss under this section shall be passed through to the partners or shareholders in accordance with the applicable provisions of Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001). For purposes of this paragraph, “pass-thru entity” means any entity taxed as a partnership or “S” corporation.
(3) “Substantial sale” means a sale that one or more sales in which the total amount realized exceeds 5 percent of the taxpayer’s gross receipts for the taxable year.

SEC. 4.

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