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SB-1349 Taxation: credits: California New Employment Credit.(2021-2022)

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Date Published: 06/28/2022 09:00 PM
SB1349:v94#DOCUMENT

Amended  IN  Assembly  June 28, 2022
Amended  IN  Assembly  June 13, 2022
Amended  IN  Senate  May 19, 2022
Amended  IN  Senate  April 04, 2022
Amended  IN  Senate  March 21, 2022

CALIFORNIA LEGISLATURE— 2021–2022 REGULAR SESSION

Senate Bill
No. 1349

Introduced by Senator Caballero
(Coauthor: Assembly Member Villapudua)

February 18, 2022

An act to amend Sections 17053.73 and 23626 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


SB 1349, as amended, Caballero. Taxation: credits: California New Employment Credit.
The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws, including, for taxable years beginning on or after January 1, 2014, and before January 1, 2026, a credit to a qualified taxpayer that hires a qualified full-time employee within a designated census tract or economic development area and that receives a tentative credit reservation for that qualified full-time employee. For purposes of that credit, a qualified taxpayer excludes specified employers, including employers that provide temporary help services, that provide retail trade services, or that are primarily engaged in providing food services and other specified services. For purposes of that credit, various requirements relating to work within those tracts or areas are further prescribed. For Under that credit, “qualified wages” are defined to mean wages that meet specified requirements and that portion of the wages paid or incurred by the qualified taxpayer during the taxable year to each qualified full-time employee that exceeds 150% of minimum wage, but does not exceed 350% of minimum wage. Under that credit, however, if the qualified full-time employee is employed in a designated pilot area, “qualified wages” are defined to mean wages that meet specified requirements and that portion of wages paid or incurred by the qualified taxpayer to each qualified full-time employee that exceeds $10 per hour or an equivalent amount for salaried employees, but does not exceed 350% of minimum wage.
For purposes of that credit, a qualified full-time employee is defined as an individual who meets certain requirements, including that they are, upon commencement of employment with the qualified taxpayer, unemployed, a veteran, an ex-offender previously convicted of a felony, or a recipient of CalWORKs, general assistance, or the federal earned income credit, as those requirements are further described. Existing law requires the Franchise Tax Board to determine the aggregate tentative reservation amount and the aggregate small business tentative reservation amount for a calendar year.
This bill would remove, for taxable years beginning on or after January 1, 2023, the requirement that the work performed by the qualified full-time employee be in a designated census tract or economic development area, and would make conforming and related changes to remove requirements relating to those tracts and areas. The bill would expand the definition of qualified full-time employee to also include an employee claimed by the qualified taxpayer during the taxable year, as described, for a federal work opportunity credit, as defined. The bill would also remove the exclusions from the definition of qualified taxpayer, except for sexually oriented businesses. The bill would instead define “qualified wages” to mean that portion of wages paid or incurred by the qualified taxpayer during the taxable year to each qualified full-time employee that exceeds 150% of the minimum wage, but does not exceed 350% of minimum wage, among other things.
This bill would prohibit the requirement that the board determine the aggregate tentative reservation amount and aggregate small business tentative reservation amount from being construed to limit the aggregate amount of credits granted to all qualified taxpayers.
Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax credit will achieve, detailed performance indicators, and data collection requirements.
This bill would state that it is the intent of the Legislature to enact legislation that would comply provide information in compliance with that requirement.
This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature.
This bill would take effect immediately as a tax levy.
Vote: 2/3   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

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


SECTION 1.

 Section 17053.73 of the Revenue and Taxation Code is amended to read:

17053.73.
 (a) (1) For each taxable year beginning on or after January 1, 2014, and before January 1, 2026, there shall be allowed to a qualified taxpayer that hires a qualified full-time employee and pays or incurs qualified wages attributable to work performed by the qualified full-time employee, and that receives a tentative credit reservation for that qualified full-time employee, a credit against the “net tax,” as defined in Section 17039, in an amount calculated under this section.
(2) The amount of the credit allowable under this section for a taxable year shall be equal to the product of the tentative credit amount for the taxable year and the applicable percentage for that taxable year.
(3) The credit allowed by this section may be claimed only on a timely filed original return of the qualified taxpayer and only with respect to a qualified full-time employee for whom the qualified taxpayer has received a tentative credit reservation.
(b) For purposes of this section:
(1) The “tentative credit amount” for a taxable year shall be equal to the product of the applicable credit percentage for each qualified full-time employee and the qualified wages paid by the qualified taxpayer during the taxable year to that qualified full-time employee.
(2) The “applicable percentage” for a taxable year shall be equal to a fraction, the numerator of which is the net increase in the total number of full-time employees employed in this state during the taxable year, determined on an annual full-time equivalent basis, as compared with the total number of full-time employees employed in this state during the base year, determined on the same basis, and the denominator of which shall be the total number of qualified full-time employees employed in this state during the taxable year. The applicable percentage shall not exceed 100 percent.
(3) The “applicable credit percentage” means the credit percentage for the calendar year during which a qualified full-time employee was first employed by the qualified taxpayer. The applicable credit percentage for all calendar years shall be 35 percent.
(4) “Base year” means the 2013 taxable year, except in the case of a qualified taxpayer who first hires a qualified full-time employee in a taxable year beginning on or after January 1, 2015, the base year means the taxable year immediately preceding the taxable year in which a qualified full-time employee was first hired by the qualified taxpayer.
(5) “Acquired” includes any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration.
(6) “Annual full-time equivalent” means either of the following:
(A) In the case of a full-time employee paid hourly qualified wages, “annual full-time equivalent” means the total number of hours worked for the qualified taxpayer by the employee, not to exceed 2,000 hours per employee, divided by 2,000.
(B) In the case of a salaried full-time employee, “annual full-time equivalent” means the total number of weeks worked for the qualified taxpayer by the employee divided by 52.
(7) “Minimum wage” means the wage established pursuant to Chapter 1 (commencing with Section 1171) of Part 4 of Division 2 of the Labor Code.
(8) (A) “Qualified full-time employee” means an individual who meets all of the following requirements:
(i) Receives starting wages that are either of the following: at least 150 percent of the minimum wage.

(I)At least 150 percent of the minimum wage.

(II)At least ten dollars ($10) per hour or an equivalent amount for salaried employees.

(ii) Is hired by the qualified taxpayer on or after January 1, 2023.
(iii) Satisfies either of the following conditions:
(I) Is paid qualified wages by the qualified taxpayer for services not less than an average of 35 hours per week.
(II) Is a salaried employee and was paid compensation during the taxable year for full-time employment, within the meaning of Section 515 of the Labor Code, by the qualified taxpayer.
(iv) Satisfies either of the following:
(I) (ia) The qualified taxpayer claimed a federal work opportunity credit during the taxable year for the employee on the qualified taxpayer’s federal income tax return.
(ib) For purposes of this subclause, “federal work opportunity credit” means the work opportunity tax credit under Section 51 of the Internal Revenue Code for wages paid or incurred by the qualified taxpayer to certain individuals specified in that section.
(II) Upon commencement of employment with the qualified taxpayer, satisfies any of the following conditions:
(ia) Was unemployed for the six months immediately preceding employment with the qualified taxpayer. In the case of an individual that completed a program of study at a college, university, or other postsecondary educational institution, received a baccalaureate, postgraduate, or professional degree, and was unemployed for the six months immediately preceding employment with the qualified taxpayer, that individual must have completed that program of study at least 12 months prior to the individual’s commencement of employment with the qualified taxpayer.
(ib) Is a veteran who separated from service in the Armed Forces of the United States within the 12 months preceding commencement of employment with the qualified taxpayer.
(ic) Was a recipient of the credit allowed under Section 32 of the Internal Revenue Code, relating to earned income, as applicable for federal purposes, for the previous taxable year.
(id) Is an ex-offender previously convicted of a felony.
(ie) Is a recipient of either CalWORKs, in accordance with Article 2 (commencing with Section 11250) of Chapter 2 of Part 3 of Division 9 of the Welfare and Institutions Code, or general assistance, in accordance with Section 17000.5 of the Welfare and Institutions Code.
(B) (i) An individual may be considered a qualified full-time employee only for the period of time commencing with the date the individual is first employed by the qualified taxpayer and ending 60 months thereafter.
(ii) An individual that is considered, and is claimed by a qualified taxpayer as, a qualified full-time employee for purposes of this section, as it read on January 1, 2022, for any taxable year beginning before January 1, 2023, shall continue to be considered a “qualified full-time employee” for the period of time commencing with the date the individual is first employed by the qualified taxpayer and ending 60 months thereafter if the individual continues to be paid, or the qualified taxpayer incurs for the individual, qualified wages in accordance with clause (iii) of subparagraph (A). Notwithstanding other provisions in this section, however, these qualified wages shall not be required to be subject to withholding, as described in paragraph (11).
(9) (A) “Qualified taxpayer” means a person or entity engaged in a trade or business that, during the taxable year, pays or incurs qualified wages.
(B) In the case of any 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 credit under this section or Section 23626 shall be allowed to the pass-thru entity and passed through to the partners and shareholders in accordance with applicable provisions of this part or Part 11 (commencing with Section 23001). For purposes of this subdivision, the term “pass-thru entity” means any partnership or “S” corporation.
(C) “Qualified taxpayers” shall not include any of the following:
(i) Employers that provide temporary help services, as described in Code 561320 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2012 edition.
(ii) Employers that provide retail trade services, as described in Sector 44-45 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2012 edition.
(iii) Employers that are primarily engaged in providing food services, as described in Code 711110, 722511, 722513, 722514, or 722515 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2012 edition.
(iv) Employers that are primarily engaged in services as described in Code 713210, 721120, or 722410 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2012 edition.

(C)(i)“Qualified taxpayers” shall not include an

(v) (I) An employer that is a sexually oriented business.

(ii)

(II) For purposes of this subparagraph, clause, the following apply:

(I)

(ia) “Sexually oriented business” means a nightclub, bar, restaurant, or similar commercial enterprise that provides for an audience of two or more individuals live nude entertainment or live nude performances where the nudity is a function of everyday business operations and where nudity is a planned and intentional part of the entertainment or performance.

(II)

(ib) “Nude” means clothed in a manner that leaves uncovered or visible, through less than fully opaque clothing, any portion of the genitals or, in the case of a female, any portion of the breasts below the top of the areola of the breasts.
(D) Subparagraph (C) shall not apply to a taxpayer that is a “small business.”
(10) “Qualified wages” means those wages that meet both of the following requirements:
(A) That portion of wages paid or incurred by the qualified taxpayer during the taxable year to each qualified full-time employee that satisfies either of the following: exceeds 150 percent of the minimum wage, but does not exceed 350 percent of the minimum wage.

(i)For a qualified full-time employee with starting wages that satisfy subclause (I) of clause (i) of subparagraph (A) of paragraph (8), exceeds 150 percent of minimum wage, but does not exceed 350 percent of minimum wage.

(ii)For a qualified full-time employee with starting wages that satisfy subclause (II) of clause (i) of subparagraph (A) of paragraph (8), exceeds ten dollars ($10) per hour or an equivalent amount for salaried employees, but does not exceed 350 percent of minimum wage.

(B) Wages paid or incurred during the 60-month period beginning with the first day the qualified full-time employee commences employment with the qualified taxpayer. In the case of any employee who is reemployed, including a regularly occurring seasonal increase, in the trade or business operations of the qualified taxpayer, this reemployment shall not be treated as constituting commencement of employment for purposes of this section.
(11) “Wages” means wages subject to withholding under Division 6 (commencing with Section 13000) of the Unemployment Insurance Code.
(12) “Seasonal employment” means employment by a qualified taxpayer that has regular and predictable substantial reductions in trade or business operations.
(13) (A) “Small business” means a trade or business that has aggregate gross receipts, less returns and allowances reportable to this state, of less than two million dollars ($2,000,000) during the previous taxable year.
(B) (i) For purposes of this paragraph, “gross receipts, less returns and allowances reportable to this state,” means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(ii) In the case of any trade or business activity conducted by a partnership or an “S” corporation, the limitations set forth in subparagraph (A) shall be applied to the partnership or “S” corporation and to each partner or shareholder.
(C) (i) “Small business” shall not include a sexually oriented business.
(ii) For purposes of this subparagraph:
(I) “Sexually oriented business” means a nightclub, bar, restaurant, or similar commercial enterprise that provides for an audience of two or more individuals live nude entertainment or live nude performances where the nudity is a function of everyday business operations and where nudity is a planned and intentional part of the entertainment or performance.
(II) “Nude” means clothed in a manner that leaves uncovered or visible, through less than fully opaque clothing, any portion of the genitals or, in the case of a female, any portion of the breasts below the top of the areola of the breasts.
(14) An individual is “unemployed” for any period for which the individual is all of the following:
(A) Not in receipt of wages subject to withholding under Section 13020 of the Unemployment Insurance Code for that period.
(B) Not a self-employed individual (within the meaning of Section 401(c)(1)(B) of the Internal Revenue Code, relating to self-employed individual) for that period.
(C) Not a registered full-time student at a high school, college, university, or other postsecondary educational institution for that period.
(c) The net increase in full-time employees of a qualified taxpayer shall be determined as provided by this subdivision:
(1) (A) The net increase in full-time employees shall be determined on an annual full-time equivalent basis by subtracting from the amount determined in subparagraph (C) the amount determined in subparagraph (B).
(B) The total number of full-time employees employed in the base year by the taxpayer and by any trade or business acquired by the taxpayer during the current taxable year.
(C) The total number of full-time employees employed in the current taxable year by the taxpayer and by any trade or business acquired during the current taxable year.
(2) For taxpayers who first commence doing business in this state during the taxable year, the number of full-time employees for the base year shall be zero.
(d) For purposes of this section:
(1) All employees of the trades or businesses that are treated as related under Section 267, 318, or 707 of the Internal Revenue Code shall be treated as employed by a single taxpayer.
(2) In determining whether the taxpayer has first commenced doing business in this state during the taxable year, the provisions of subdivision (f) of Section 17276, without application of paragraph (7) of that subdivision, shall apply.
(e) (1) To be eligible for the credit allowed by this section, a qualified taxpayer shall, upon hiring a qualified full-time employee, request a tentative credit reservation from the Franchise Tax Board within 30 days of complying with the Employment Development Department’s new hire reporting requirements as provided in Section 1088.5 of the Unemployment Insurance Code, in the form and manner prescribed by the Franchise Tax Board.
(2) To obtain a tentative credit reservation with respect to a qualified full-time employee, the qualified taxpayer shall provide necessary information, as determined by the Franchise Tax Board, including the name, social security number, the start date of employment, the rate of pay of the qualified full-time employee, the qualified taxpayer’s gross receipts, less returns and allowances, for the previous taxable year, and whether the qualified full-time employee is a resident of a targeted employment area, as defined in former Section 7072 of the Government Code, as in effect on December 31, 2013.
(3) The qualified taxpayer shall provide the Franchise Tax Board an annual certification of employment with respect to each qualified full-time employee hired in a previous taxable year, on or before, the 15th day of the third month of the taxable year. The certification shall include necessary information, as determined by the Franchise Tax Board, including the name, social security number, start date of employment, and rate of pay for each qualified full-time employee employed by the qualified taxpayer.
(4) A tentative credit reservation provided to a taxpayer with respect to an employee of that taxpayer shall not constitute a determination by the Franchise Tax Board with respect to any of the requirements of this section regarding a taxpayer’s eligibility for the credit authorized by this section.
(f) The Franchise Tax Board shall do all of the following:
(1) Approve a tentative credit reservation with respect to a qualified full-time employee hired during a calendar year.
(2) Determine the aggregate tentative reservation amount and the aggregate small business tentative reservation amount for a calendar year.
(3) A tentative credit reservation request from a qualified taxpayer with respect to a qualified full-time employee who is a resident of a targeted employment area, as defined in former Section 7072 of the Government Code, as in effect on December 31, 2013, shall be expeditiously processed by the Franchise Tax Board. The residence of a qualified full-time employee in a targeted employment area shall have no other effect on the eligibility of an individual as a qualified full-time employee or the eligibility of a qualified taxpayer for the credit authorized by this section.
(4) Notwithstanding Section 19542, provide as a searchable database on its internet website, for each taxable year beginning on or after January 1, 2014, and before January 1, 2026, the employer names, amounts of tax credit claimed, and number of new jobs created for each taxable year pursuant to this section and Section 23626.
(5) The requirements of this subdivision shall not be construed to limit the aggregate amount of credits granted to all qualified taxpayers pursuant this section.
(g) For purposes of this section:
(1) All employees of the trades or businesses that are treated as related under Section 267, 318, or 707 of the Internal Revenue Code shall be treated as employed by a single taxpayer.
(2) All employees of trades or businesses that are not incorporated, and that are under common control, shall be treated as employed by a single taxpayer.
(3) The credit, if any, allowable by this section with respect to each trade or business shall be determined by reference to its proportionate share of the expense of the qualified wages giving rise to the credit, and shall be allocated to that trade or business in that manner.
(4) Principles that apply in the case of controlled groups of corporations, as specified in subdivision (h) of Section 23626, shall apply with respect to determining employment.
(5) If an employer acquires the major portion of a trade or business of another employer, hereinafter in this paragraph referred to as the predecessor, or the major portion of a separate unit of a trade or business of a predecessor, then, for purposes of applying this section, other than subdivision (h), for any taxable year ending after that acquisition, the employment relationship between a qualified full-time employee and an employer shall not be treated as terminated if the employee continues to be employed in that trade or business.
(h) (1) If the employment of any qualified full-time employee, with respect to whom qualified wages are taken into account under subdivision (a), is terminated by the qualified taxpayer at any time during the first 36 months after commencing employment with the qualified taxpayer, whether or not consecutive, the tax imposed by this part for the taxable year in which that employment is terminated shall be increased by an amount equal to the credit allowed under subdivision (a) for that taxable year and all prior taxable years attributable to qualified wages paid or incurred with respect to that employee.
(2) Paragraph (1) does not apply to any of the following:
(A) A termination of employment of a qualified full-time employee who voluntarily leaves the employment of the qualified taxpayer.
(B) A termination of employment of a qualified full-time employee who, before the close of the period referred to in paragraph (1), becomes disabled and unable to perform the services of that employment, unless that disability is removed before the close of that period and the qualified taxpayer fails to offer reemployment to that employee.
(C) A termination of employment of a qualified full-time employee, if it is determined that the termination was due to the misconduct, as defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the California Code of Regulations, of that employee.
(D) A termination of employment of a qualified full-time employee due to a substantial reduction in the trade or business operations of the qualified taxpayer, including reductions due to seasonal employment.
(E) A termination of employment of a qualified full-time employee, if that employee is replaced by other qualified full-time employees so as to create a net increase in both the number of employees and the hours of employment.
(F) A termination of employment of a qualified full-time employee, when that employment is considered seasonal employment and the qualified employee is rehired on a seasonal basis.
(3) For purposes of paragraph (1), the employment relationship between the qualified taxpayer and a qualified full-time employee shall not be treated as terminated by reason of a mere change in the form of conducting the trade or business of the qualified taxpayer, if the qualified full-time employee continues to be employed in that trade or business and the qualified taxpayer retains a substantial interest in that trade or business.
(4) An increase in tax under paragraph (1) shall not be treated as tax imposed by this part for purposes of determining the amount of any credit allowable under this part.
(i) In the case of an estate or trust, both of the following apply:
(1) The qualified wages for a taxable year shall be apportioned between the estate or trust and the beneficiaries on the basis of the income of the estate or trust allocable to each.
(2) A beneficiary to whom any qualified wages have been apportioned under paragraph (1) shall be treated, for purposes of this part, as the employer with respect to those wages.
(j) In the case in which 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 the succeeding four years if necessary, until the credit is exhausted.
(k) The Franchise Tax Board may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. 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 rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section.
(l) The For purposes of complying with Section 41, the Franchise Tax Board shall annually provide to the Joint Legislative Budget Committee, by no later than March 1, a report of the total dollar amount of the credits claimed under this section with respect to the relevant fiscal year. The report shall compare the total dollar amount of credits claimed under this section with respect to that fiscal year with the department’s estimate with respect to that same fiscal year. If the total dollar amount of credits claimed for the fiscal year is less than the estimate for that fiscal year, the report shall identify options for increasing annual claims of the credit so as to meet estimated amounts.
(m) (1) This section shall remain in effect only until December 1, 2029, and as of that date is repealed.
(2) Notwithstanding paragraph (1) of subdivision (a), this section shall continue to be operative for taxable years beginning on or after January 1, 2026, but only with respect to qualified full-time employees who commenced employment with a qualified taxpayer in a taxable year beginning before January 1, 2026.
(n)  The amendments made to this section by the act adding this subdivision shall apply for taxable years beginning on or after January 1, 2023.

SEC. 2.

 Section 23626 of the Revenue and Taxation Code is amended to read:

23626.
 (a) (1) For each taxable year beginning on or after January 1, 2014, and before January 1, 2026, there shall be allowed to a qualified taxpayer that hires a qualified full-time employee and pays or incurs qualified wages attributable to work performed by the qualified full-time employee, and that receives a tentative credit reservation for that qualified full-time employee, a credit against the “tax,” as defined by Section 23036, in an amount calculated under this section.
(2) The amount of the credit allowable under this section for a taxable year shall be equal to the product of the tentative credit amount for the taxable year and the applicable percentage for the taxable year.
(3) The credit allowed by this section may only be claimed on a timely filed original return of the qualified taxpayer and only with respect to a qualified full-time employee for whom the qualified taxpayer has received a tentative credit reservation.
(b) For purposes of this section:
(1) The “tentative credit amount” for a taxable year shall be equal to the product of the applicable credit percentage for each qualified full-time employee and the qualified wages paid by the qualified taxpayer during the taxable year to that qualified full-time employee.
(2) The “applicable percentage” for a taxable year shall be equal to a fraction, the numerator of which is the net increase in the total number of full-time employees employed in this state during the taxable year, determined on an annual full-time equivalent basis, as compared with the total number of full-time employees employed in this state during the base year, determined on the same basis, and the denominator of which shall be the total number of qualified full-time employees employed in this state during the taxable year. The applicable percentage shall not exceed 100 percent.
(3) The “applicable credit percentage” means the credit percentage for the calendar year during which a qualified full-time employee was first employed by the qualified taxpayer. The applicable credit percentage for all calendar years shall be 35 percent.
(4) “Base year” means the 2013 taxable year, or in the case of a qualified taxpayer who first hires a qualified full-time employee in a taxable year beginning on or after January 2015, the taxable year immediately preceding the taxable year in which the qualified full-time employee was hired.
(5) “Acquired” includes any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration.
(6) “Annual full-time equivalent” means either of the following:
(A) In the case of a full-time employee paid hourly qualified wages, “annual full-time equivalent” means the total number of hours worked for the qualified taxpayer by the employee (not to exceed 2,000 hours per employee) divided by 2,000.
(B) In the case of a salaried full-time employee, “annual full-time equivalent” means the total number of weeks worked for the qualified taxpayer by the employee divided by 52.
(7) “Minimum wage” means the wage established pursuant to Chapter 1 (commencing with Section 1171) of Part 4 of Division 2 of the Labor Code.
(8) (A) “Qualified full-time employee” means an individual who meets all of the following requirements:
(i) Receives starting wages that are either of the following: at least 150 percent of the minimum wage.

(I)At least 150 percent of the minimum wage.

(II)At least ten dollars ($10) per hour or an equivalent amount for salaried employees.

(ii) Is hired by the qualified taxpayer on or after January 1, 2023.
(iii) Satisfies either of the following conditions:
(I) Is paid qualified wages by the qualified taxpayer for services not less than an average of 35 hours per week.
(II) Is a salaried employee and was paid compensation during the taxable year for full-time employment, within the meaning of Section 515 of the Labor Code, by the qualified taxpayer.
(iv) Satisfies either of the following:
(I) (ia) The qualified taxpayer claimed a federal work opportunity credit during the taxable year for the employee on the qualified taxpayer’s federal income tax return.
(ib) For purposes of this subclause, “federal work opportunity credit” means the work opportunity tax credit under Section 51 of the Internal Revenue Code for wages paid or incurred by the qualified taxpayer to certain individuals specified in that section.
(II) Upon commencement of employment with the qualified taxpayer, satisfies any of the following conditions:
(ia) Was unemployed for the six months immediately preceding employment with the qualified taxpayer. In the case of an individual who completed a program of study at a college, university, or other postsecondary educational institution, received a baccalaureate, postgraduate, or professional degree, and was unemployed for the six months immediately preceding employment with the qualified taxpayer, that individual must have completed that program of study at least 12 months prior to the individual’s commencement of employment with the qualified taxpayer.
(ib) Is a veteran who separated from service in the Armed Forces of the United States within the 12 months preceding commencement of employment with the qualified taxpayer.
(ic) Was a recipient of the credit allowed under Section 32 of the Internal Revenue Code, relating to earned income, as applicable for federal purposes, for the previous taxable year.
(id) Is an ex-offender previously convicted of a felony.
(ie) Is a recipient of either CalWORKs, in accordance with Article 2 (commencing with Section 11250) of Chapter 2 of Part 3 of Division 9 of the Welfare and Institutions Code, or general assistance, in accordance with Section 17000.5 of the Welfare and Institutions Code.
(B) (i) An individual may only be considered a qualified full-time employee for the period of time commencing with the date the individual is first employed by the qualified taxpayer and ending 60 months thereafter.
(ii) An individual that is considered, and is claimed by a qualified taxpayer as, a qualified full-time employee for purposes of this section, as it read on January 1, 2022, for any taxable year beginning before January 1, 2023, shall continue to be considered a “qualified full-time employee” for the period of time commencing with the date the individual is first employed by the qualified taxpayer and ending 60 months thereafter if the individual continues to be paid, or the qualified taxpayer incurs for the individual, qualified wages in accordance with clause (iii) of subparagraph (A). Notwithstanding other provisions in this section, however, these qualified wages shall not be required to be subject to withholding, as described in paragraph (11).
(9) (A) “Qualified taxpayer” means a corporation engaged in a trade or business that, during the taxable year, pays or incurs qualified wages.
(B) In the case of any 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 credit under this section or Section 17053.73 shall be allowed to the pass-thru entity and passed through to the partners and shareholders in accordance with applicable provisions of this part or Part 10 (commencing with Section 17001). For purposes of this subdivision, the term “pass-thru entity” means any partnership or “S” corporation.
(C) “Qualified taxpayers” shall not include any of the following:
(i) Employers that provide temporary help services, as described in Code 561320 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2012 edition.
(ii) Employers that provide retail trade services, as described in Sector 44-45 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2012 edition.
(iii) Employers that are primarily engaged in providing food services, as described in Code 711110, 722511, 722513, 722514, or 722515 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2012 edition.
(iv) Employers that are primarily engaged in services as described in Code 713210, 721120, or 722410 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2012 edition.

(C)(i)“Qualified taxpayers” shall not include an

(v) (I) An employer that is a sexually oriented business.

(ii)

(II) For purposes of this subparagraph, clause, the following apply:

(I)

(ia) “Sexually oriented business” means a nightclub, bar, restaurant, or similar commercial enterprise that provides for an audience of two or more individuals live nude entertainment or live nude performances where the nudity is a function of everyday business operations and where nudity is a planned and intentional part of the entertainment or performance.

(II)

(ib) “Nude” means clothed in a manner that leaves uncovered or visible, through less than fully opaque clothing, any portion of the genitals or, in the case of a female, any portion of the breasts below the top of the areola of the breasts.
(D) Subparagraph (C) shall not apply to a taxpayer that is a “small business.”
(10) “Qualified wages” means those wages that meet all both of the following requirements:
(A) That portion of wages paid or incurred by the qualified taxpayer during the taxable year to each qualified full-time employee that satisfies either of the following: exceeds 150 percent of the minimum wage, but does not exceed 350 percent of the minimum wage.

(i)For a qualified full-time employee with starting wages that satisfy subclause (I) of clause (i) of subparagraph (A) of paragraph (8), exceeds 150 percent of minimum wage, but does not exceed 350 percent of the minimum wage.

(ii)For a qualified full-time employee with starting wages that satisfy subclause (II) of clause (i) of subparagraph (A) of paragraph (8), exceeds ten dollars ($10) per hour or an equivalent amount for salaried employees, but does not exceed 350 percent of minimum wage.

(B) Wages paid or incurred during the 60-month period beginning with the first day the qualified full-time employee commences employment with the qualified taxpayer. In the case of any employee who is reemployed, including regularly occurring seasonal increase, in the trade or business operations of the qualified taxpayer, this reemployment shall not be treated as constituting commencement of employment for purposes of this section.
(11) “Wages” means wages subject to withholding under Division 6 (commencing with Section 13000) of the Unemployment Insurance Code.
(12) “Seasonal employment” means employment by a qualified taxpayer that has regular and predictable substantial reductions in trade or business operations.
(13) (A) “Small business” means a trade or business that has aggregate gross receipts, less returns and allowances reportable to this state, of less than two million dollars ($2,000,000) during the previous taxable year.
(B) (i) For purposes of this paragraph, “gross receipts, less returns and allowances reportable to this state,” means the sum of the gross receipts from the production of business income, as defined in subdivision (a) of Section 25120, and the gross receipts from the production of nonbusiness income, as defined in subdivision (d) of Section 25120.
(ii) In the case of any trade or business activity conducted by a partnership or an “S” corporation, the limitations set forth in subparagraph (A) shall be applied to the partnership or “S” corporation and to each partner or shareholder.
(iii) For taxpayers that are required to be included in a combined report under Section 25101 or authorized to be included in a combined report under Section 25101.15, the dollar amount specified in subparagraph (A) shall apply to the aggregate gross receipts of all taxpayers that are required to be or authorized to be included in a combined report.
(C) (i) “Small business” shall not include a sexually oriented business.
(ii) For purposes of this subparagraph:
(I) “Sexually oriented business” means a nightclub, bar, restaurant, or similar commercial enterprise that provides for an audience of two or more individuals live nude entertainment or live nude performances where the nudity is a function of everyday business operations and where nudity is a planned and intentional part of the entertainment or performance.
(II) “Nude” means clothed in a manner that leaves uncovered or visible, through less than fully opaque clothing, any portion of the genitals or, in the case of a female, any portion of the breasts below the top of the areola of the breasts.
(14) An individual is “unemployed” for any period for which the individual is all of the following:
(A) Not in receipt of wages subject to withholding under Section 13020 of the Unemployment Insurance Code for that period.
(B) Not a self-employed individual (within the meaning of Section 401(c)(1)(B) of the Internal Revenue Code, relating to self-employed individual) for that period.
(C) Not a registered full-time student at a high school, college, university, or other postsecondary educational institution for that period.
(c) The net increase in full-time employees of a qualified taxpayer shall be determined as provided by this subdivision:
(1) (A) The net increase in full-time employees shall be determined on an annual full-time equivalent basis by subtracting from the amount determined in subparagraph (C) the amount determined in subparagraph (B).
(B) The total number of full-time employees employed in the base year by the taxpayer and by any trade or business acquired by the taxpayer during the current taxable year.
(C) The total number of full-time employees employed in the current taxable year by the taxpayer and by any trade or business acquired during the current taxable year.
(2) For taxpayers who first commence doing business in this state during the taxable year, the number of full-time employees for the base year shall be zero.
(d) For purposes of this section:
(1) All employees of the trades or businesses that are treated as related under Section 267, 318, or 707 of the Internal Revenue Code shall be treated as employed by a single taxpayer.
(2) In determining whether the taxpayer has first commenced doing business in this state during the taxable year, the provisions of subdivision (g) of Section 24416, without application of paragraph (7) of that subdivision, apply.
(e) (1) To be eligible for the credit allowed by this section, a qualified taxpayer shall, upon hiring a qualified full-time employee, request a tentative credit reservation from the Franchise Tax Board within 30 days of complying with the Employment Development Department’s new hire reporting requirement as provided in Section 1088.5 of the Unemployment Insurance Code, in the form and manner prescribed by the Franchise Tax Board.
(2) To obtain a tentative credit reservation with respect to a qualified full-time employee, the qualified taxpayer shall provide necessary information, as determined by the Franchise Tax Board, including the name, the social security number, the start date of employment, the rate of pay of the qualified full-time employee, the qualified taxpayer’s gross receipts, less returns and allowances, for the previous taxable year, and whether the qualified full-time employee is a resident of a targeted employment area, as defined in former Section 7072 of the Government Code, as in effect on December 31, 2013.
(3) The qualified taxpayer shall provide the Franchise Tax Board an annual certification of employment with respect to each qualified full-time employee hire in a previous taxable year, on or before the 15th day of the third month of the taxable year. The certification shall include necessary information, as determined by the Franchise Tax Board, including the name, social security number, start date of employment, and rate of pay for each qualified full-time employee employed by the qualified taxpayer.
(4) A tentative credit reservation provided to a taxpayer with respect to an employee of that taxpayer shall not constitute a determination by the Franchise Tax Board with respect to any of the requirements of this section regarding a taxpayer’s eligibility for the credit authorized by this section.
(f) The Franchise Tax Board shall do all of the following:
(1) Approve a tentative credit reservation with respect to a qualified full-time employee hired during a calendar year.
(2) Determine the aggregate tentative reservation amount and the aggregate small business tentative reservation amount for a calendar year.
(3) A tentative credit reservation request from a qualified taxpayer with respect to a qualified full-time employee who is a resident of a targeted employment area, as defined in former Section 7072 of the Government Code, as in effect on December 31, 2013, shall be expeditiously processed by the Franchise Tax Board. The residence of a qualified full-time employee in a targeted employment area shall have no other effect on the eligibility of an individual as a qualified full-time employee or the eligibility of a qualified taxpayer for the credit authorized by this section.
(4) Notwithstanding Section 19542, provide as a searchable database on its internet website, for each taxable year beginning on or after January 1, 2014, and before January 1, 2026, the employer names, amounts of tax credit claimed, and number of new jobs created for each taxable year pursuant to this section and Section 17053.73.
(5) The requirements of this subdivision shall not be construed to limit the aggregate amount of credits granted to all qualified taxpayers pursuant this section.
(g) (1) For purposes of this section:
(A) All employees of the trades or businesses that are treated as related under Section 267, 318, or 707 of the Internal Revenue Code shall be treated as employed by a single qualified taxpayer.
(B) All employees of all corporations that are members of the same controlled group of corporations shall be treated as employed by a single qualified taxpayer.
(C) The credit, if any, allowable by this section to each member shall be determined by reference to its proportionate share of the expense of the qualified wages giving rise to the credit, and shall be allocated in that manner.
(D) If a qualified taxpayer acquires the major portion of a trade or business of another taxpayer, hereinafter in this paragraph referred to as the predecessor, or the major portion of a separate unit of a trade or business of a predecessor, then, for purposes of applying this section for any taxable year ending after that acquisition, the employment relationship between a qualified full-time employee and a qualified taxpayer shall not be treated as terminated if the employee continues to be employed in that trade or business.
(2) For purposes of this subdivision, “controlled group of corporations” means a controlled group of corporations as defined in Section 1563(a) of the Internal Revenue Code, except that:
(A) “More than 50 percent” shall be substituted for “at least 80 percent” each place it appears in Section 1563(a)(1) of the Internal Revenue Code.
(B) The determination shall be made without regard to subsections (a)(4) and (e)(3)(C) of Section 1563 of the Internal Revenue Code.
(3) Rules similar to the rules provided in Sections 46(e) and 46(h) of the Internal Revenue Code, as in effect on November 4, 1990, shall apply to both of the following:
(A) An organization to which Section 593 of the Internal Revenue Code applies.
(B) A regulated investment company or a real estate investment trust subject to taxation under this part.
(h) (1) If the employment of any qualified full-time employee, with respect to whom qualified wages are taken into account under subdivision (a), is terminated by the qualified taxpayer at any time during the first 36 months after commencing employment with the qualified taxpayer, whether or not consecutive, the tax imposed by this part for the taxable year in which that employment is terminated shall be increased by an amount equal to the credit allowed under subdivision (a) for that taxable year and all prior taxable years attributable to qualified wages paid or incurred with respect to that employee.
(2) Paragraph (1) does not apply to any of the following:
(A) A termination of employment of a qualified full-time employee who voluntarily leaves the employment of the qualified taxpayer.
(B) A termination of employment of a qualified full-time employee who, before the close of the period referred to in paragraph (1), becomes disabled and unable to perform the services of that employment, unless that disability is removed before the close of that period and the qualified taxpayer fails to offer reemployment to that employee.
(C) A termination of employment of a qualified full-time employee, if it is determined that the termination was due to the misconduct, as defined in Sections 1256-30 to 1256-43, inclusive, of Title 22 of the California Code of Regulations, of that employee.
(D) A termination of employment of a qualified full-time employee due to a substantial reduction in the trade or business operations of the qualified taxpayer, including reductions due to seasonal employment.
(E) A termination of employment of a qualified full-time employee, if that employee is replaced by other qualified full-time employees so as to create a net increase in both the number of employees and the hours of employment.
(F) A termination of employment of a qualified full-time employee, when that employment is considered seasonal employment and the qualified employee is rehired on a seasonal basis.
(3) For purposes of paragraph (1), the employment relationship between the qualified taxpayer and a qualified full-time employee shall not be treated as terminated by reason of a mere change in the form of conducting the trade or business of the qualified taxpayer, if the qualified full-time employee continues to be employed in that trade or business and the qualified taxpayer retains a substantial interest in that trade or business.
(4) An increase in tax under paragraph (1) shall not be treated as tax imposed by this part for purposes of determining the amount of any credit allowable under this part.
(i) 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 the succeeding four years if necessary, until exhausted.
(j) The Franchise Tax Board may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this section, including any guidelines regarding the allocation of the credit allowed under this section. 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 rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section.
(k) The For purposes of complying with Section 41, the Franchise Tax Board shall annually provide to the Joint Legislative Budget Committee, by no later than March 1, a report of the total dollar amount of the credits claimed under this section with respect to the relevant fiscal year. The report shall compare the total dollar amount of credits claimed under this section with respect to that fiscal year with the department’s estimate with respect to that same fiscal year. If the total dollar amount of credits claimed for the fiscal year is less than the estimate for that fiscal year, the report shall identify options for increasing annual claims of the credit so as to meet estimated amounts.
(l) (1) This section shall remain in effect only until December 1, 2029, and as of that date is repealed.
(2) Notwithstanding paragraph (1) of subdivision (a), this section shall continue to be operative for taxable years beginning on or after January 1, 2026, but only with respect to qualified full-time employees who commenced employment with a qualified taxpayer in a taxable year beginning before January 1, 2026.
(3) The amendments made to this section by the act adding this subdivision shall apply for taxable years beginning on or after January 1, 2023.

SEC. 3.

It is the intent of the Legislature to enact legislation that would comply with Section 41 of the Revenue and Taxation Code.

SEC. 3.

 (a) For purposes of complying with Section 41 of the Revenue and Taxation Code, the Legislature finds and declares that the goal, purpose, and objective of the tax expenditure allowed pursuant to Sections 17053.73 and 23626 of the Revenue and Taxation Code, as amended by this act, is to encourage and expand the hiring of qualified employees in the state by providing a credit for jobs that will provide a living wage and opportunities for California residents.
(b) The detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets the goal, purpose, and objective described in subdivision (a) is the total dollar amount of the credits claimed pursuant to the tax expenditure.
(c) The data collection and reporting requirements for the tax expenditure shall be as described in subdivision (l) of Section 17053.73 and subdivision (k) of Section 23626 of the Revenue and Taxation Code.

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.