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SB-220 Income taxes: credits: corporate tax rate: minimum franchise tax: critical needs fund.(2023-2024)

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Date Published: 05/25/2023 10:59 AM
SB220:v97#DOCUMENT

Amended  IN  Senate  May 25, 2023
Amended  IN  Senate  February 21, 2023

CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Senate Bill
No. 220

Introduced by Committee on Budget and Fiscal Review

January 18, 2023

An act to amend Section 17144.8 of the Revenue and Taxation Code, relating to taxation. An act to add Chapter 6.3 (commencing with Section 6630) to Division 7 of Title 1 of the Government Code, and to amend Sections 17052, 17053.5, 17053.75, 23151, 23153, and 23802 of the Revenue and Taxation Code, relating to social programs, and making an appropriation therefor, to take effect immediately, bill related to the budget.


LEGISLATIVE COUNSEL'S DIGEST


SB 220, as amended, Committee on Budget and Fiscal Review. Personal Income Tax Law: exclusion: student loan debt. Income taxes: credits: corporate tax rate: minimum franchise tax: critical needs fund.
(1) The Personal Income Tax Law allows various credits against the taxes imposed by that law, including, for taxable years beginning on or after January 1, 2024, a credit in an amount equal to the greater of the dues paid to a labor organization during the taxable year by an individual multiplied by a workers’ tax credit adjustment factor, as described, or an amount of dues paid by an individual not to exceed a specified amount, as provided in the annual Budget Act. Existing law provides that the workers’ tax credit adjustment factor is 0% and the dollar amount allowed is $0 for each taxable year unless otherwise specified in the annual Budget Act, as provided. Existing law states the intent of the Legislature that the values provided in the annual Budget Act be calculated to limit the annual revenue loss resulting from the credit to no more than $400,000,000.
This bill would provide that the provision specifying that the workers’ tax credit adjustment factor is 0% and the dollar amount allowed is $0 for each taxable year unless otherwise specified in the annual Budget Act applies to taxable years beginning on or after January 1, 2025. The bill would remove the statement of the intent of the Legislature that the values provided in the annual Budget Act be calculated to limit the annual revenue loss resulting from the credit to no more than $400,000,000.
(2) The Personal Income Tax Law allows a credit against the taxes imposed by that law to a qualified renter, as specified, in an amount equal to $120 for spouses filing joint returns, heads of household, and surviving spouses, or $60 for other individuals. Existing law allows specified payments to eligible individuals from the Tax Relief and Refund Account, a continuously appropriated fund, including specified amounts of certain credits in excess of tax liability, as provided.
This bill, for taxable years beginning on or after January 1, 2023, would increase the credit amount for qualified renters to $250, if the qualified renter has no dependents, and to $500 if the qualified renter has one or more dependents. The bill, for each taxable year beginning on or after January 1, 2024, would require the Franchise Tax Board to recompute the credit amount to adjust for the percentage change in the California Consumer Price Index, as specified. The bill, for taxable years beginning on or after January 1, 2023, would allow a payment from the Tax Relief and Refund Account for an allowable credit in excess of tax liability to a qualified renter, as provided. By authorizing new payments from the Tax Relief and Refund Account in excess of personal income tax liabilities, the bill would make an appropriation.
(3) The Personal Income Tax Law, in modified conformity with federal income tax laws, allows an earned income tax credit against personal income tax and a payment from the Tax Relief and Refund Account, a continuously appropriated fund, for an allowable credit in excess of tax liability to an eligible individual that is equal to that portion of the earned income tax credit allowed by federal law, as determined by the earned income tax credit adjustment factor, as specified.
This bill, for taxable years beginning on or after January 1, 2023, if the amount of credit computed for an eligible individual is less than $275, as specified, would allow the credit for the eligible individual to be $275, except as otherwise specified. By authorizing additional payment amounts from the Tax Relief and Refund Account, a continuously appropriated fund, the bill would make an appropriation.
(4) Existing law, the Corporation Tax Law, imposes a tax according to or measured by net income, computed at a rate of 8.84% upon the basis of the net income for that taxable year, on every corporation, and at a rate of 1.5% for every “S” corporation, except as provided. Existing law also imposes a minimum franchise tax of $800, except as provided, on every corporation incorporated in this state, qualified to transact intrastate business in this state, or doing business in this state, and an annual tax in an amount equal to the minimum franchise tax on every limited partnership, limited liability partnership, and limited liability company registered, qualified to transact business, or doing business in this state, as specified.
This bill, for taxable years beginning on or after January 1, 2023, would adjust the rate of tax for corporations described above to be 6.63% for taxable income up to and including $1,500,000, and 10.99%, except as specified, for taxable income over $1,500,000. The bill would adjust the rate of tax for “S” corporations to be 1.125% for taxable income up to and including $1,500,000, and 1.5% for taxable income over $1,500,000. The bill would also reduce the minimum franchise tax and the annual tax for taxable years beginning on or after January 1, 2023, to $600, as specified.
(5) Existing law establishes various public social services and programs, including, among others, the California Work Opportunity and Responsibility to Kids (CalWORKs) program, the Homeless Youth Act of 2018, and the Homeless Housing, Assistance, and Prevention program. Existing law establishes a public school financing system that requires state funding for county superintendents of schools, school districts, and charter schools to be calculated pursuant to a local control funding formula, as specified.
This bill would create the Critical Needs Fund in the State Treasury, and would make the moneys in the fund available upon appropriation by the Legislature for the purpose of funding schools, providing childcare services, helping struggling hospitals, and reducing homelessness. The bill would require, on or before May 14, 2024, and annually thereafter, the Department of Finance to estimate the total amount of additional net revenues, if any, derived from the prior taxable year due to the amendments to the corporate tax rates specified above, minus the estimated revenue lost, if any, due to the amendments to the credits described above by this act and specified constitutional requirements. The bill, upon direction from the Department of Finance, would require the Controller to transfer the amount estimated from the General Fund to the Critical Needs Fund, as specified.
(6) 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.
(7) This bill would make findings and declarations related to a gift of public funds.
(8) This bill would declare that it is to take effect immediately as a bill providing for appropriations related to the Budget Bill.

The Personal Income Tax Law, in modified conformity with federal income tax law, generally defines “gross income” as income from whatever source derived, except as specifically excluded, including an exclusion for the amount of student loan indebtedness repaid or canceled pursuant to a specified federal law.

This bill would exclude from an individual’s gross income, for taxable years beginning on or after January 1, 2021, and before January 1, 2026, the amount of certain student loans discharged, in whole or in part, after December 31, 2020, and before January 1, 2026, in conformity with federal law.

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 would state the intent of the Legislature to comply with those provisions.

This bill would make findings and declarations related to a gift of public funds.

Vote: MAJORITY2/3   Appropriation: NOYES   Fiscal Committee: YES   Local Program: NO  

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


SECTION 1.

 Chapter 6.3 (commencing with Section 6630) is added to Division 7 of Title 1 of the Government Code, to read:
CHAPTER  6.3. Critical Needs Fund

6630.
 (a) There is hereby created in the State Treasury the Critical Needs Fund. Moneys in the fund are available for appropriation by the Legislature for the purpose of funding schools, providing childcare services, helping struggling hospitals, and reducing homelessness.
(b) Before May 14, 2024, and annually thereafter, the Department of Finance shall estimate the total amount of additional net revenues, if any, derived from the prior taxable year due to the amendments to the tax rates in Sections 23151, 23153, and 23802 of the Revenue and Taxation Code by the act adding this section, minus the estimated revenue lost, if any, due to the amendments to the credits allowed pursuant to Sections 17052, 17053.5, and 17053.75 of the Revenue and Taxation Code by the act adding this section and minus the amounts estimated to be necessary to satisfy the requirements of Section 8 of Article XVI of the California Constitution and Section 20 of Article XVI of the California Constitution.
(c) Upon direction from the Department of Finance, the Controller shall transfer the amount estimated in subdivision (b) from the General Fund to the Critical Needs Fund, for the purpose of funding schools, providing childcare services, and reducing homelessness.

SEC. 2.

 Section 17052 of the Revenue and Taxation Code is amended to read:

17052.
 (a) (1) For each taxable year beginning on or after January 1, 2015, there shall be allowed against the “net tax,” as defined by Section 17039, an earned income tax credit in an amount equal to an amount determined in accordance with Section 32 of the Internal Revenue Code, relating to earned income, as applicable for federal income tax purposes for the taxable year, except as otherwise provided in this section.
(2) (A) The amount of the credit determined under Section 32 of the Internal Revenue Code, relating to earned income, as modified by this section, shall be multiplied by the earned income tax credit adjustment factor for the taxable year.
(B) Unless otherwise specified in the annual Budget Act, the earned income tax credit adjustment factor for a taxable year beginning on or after January 1, 2015, shall be 0 percent.
(C) The earned income tax credit authorized by this section shall only be operative for taxable years for which resources are authorized in the annual Budget Act for the Franchise Tax Board to oversee and audit returns associated with the credit.
(b) (1) In lieu of the table prescribed in Section 32(b)(1) of the Internal Revenue Code, relating to percentages, the credit percentage and the phaseout percentage shall be determined as follows:
In the case of an eligible individual with:
The credit percentage is:
The phaseout percentage is:
No qualifying children
7.65%
7.65%
1 qualifying child
34%
34%
2 qualifying children
40%
40%
3 or more qualifying children
45%
45%
(2) (A) In lieu of the table prescribed in Section 32(b)(2)(A) of the Internal Revenue Code, the earned income amount and the phaseout amount shall be determined as follows:
In the case of an eligible individual with:
The earned income amount is:
The phaseout amount is:
No qualifying children
$3,290
$3,290
1 qualifying child
$4,940
$4,940
2 or more qualifying children
$6,935
$6,935
(B) Section 32(b)(2)(B) of the Internal Revenue Code, relating to joint returns, shall not apply.
(c) (1) Section 32(c)(1)(A)(ii)(I) of the Internal Revenue Code is modified by substituting “this state” for “the United States.”
(2) For each taxable year beginning on or after January 1, 2018, Section 32(c)(1)(A)(ii)(II) of the Internal Revenue Code is modified by deleting “25 but not attained age 65” and inserting in lieu thereof the following: “18.”
(3) Section 32(c)(2)(A) of the Internal Revenue Code is modified as follows:
(A) Section 32(c)(2)(A)(i) of the Internal Revenue Code is modified by deleting “plus” and inserting in lieu thereof the following: “and only if such amounts are subject to withholding pursuant to Division 6 (commencing with Section 13000) of the Unemployment Insurance Code.”
(B) Section 32(c)(2)(A)(ii) of the Internal Revenue Code shall not apply.
(4) For taxable years beginning on or after January 1, 2017, paragraph (3) shall not apply and in lieu thereof Section 32(c)(2)(A) of the Internal Revenue Code is modified as follows:
(A) Section 32(c)(2)(A)(i) of the Internal Revenue Code is modified by deleting “plus” and inserting in lieu thereof the following: “and only if such amounts are subject to withholding pursuant to Division 6 (commencing with Section 13000) of the Unemployment Insurance Code, plus.”
(B) Section 32(c)(2)(A)(ii) of the Internal Revenue Code shall apply.
(5) Section 32(c)(3)(C) of the Internal Revenue Code, relating to place of abode, is modified by substituting “this state” for “the United States.”
(d) Section 32(i)(1) of the Internal Revenue Code is modified by substituting “$3,400” for “$2,200.”
(e) (1) In lieu of Section 32(j) of the Internal Revenue Code, relating to inflation adjustments, for taxable years beginning on or after January 1, 2016, the amounts specified in paragraph (2) of subdivision (b) and in subdivision (d) shall be recomputed annually in the same manner as the recomputation of income tax brackets under subdivision (h) of Section 17041.
(2) For each taxable year beginning on or after January 1, 2018, and before January 1, 2019, when recomputing the amounts referenced in paragraph (1), the percentage change in the California Consumer Price Index shall be deemed to be the greater of 3.1 percent or the percentage change in the California Consumer Price Index as calculated under subdivision (h) of Section 17041 for that taxable year.
(3) For each taxable year beginning on or after January 1, 2019, and before January 1, 2020, when recomputing the amounts referenced in paragraph (1), the percentage change in the California Consumer Price Index shall be deemed to be the greater of 3.5 percent or the percentage change in the California Consumer Price Index as calculated under subdivision (h) of Section 17041 for that taxable year.
(f) If the amount allowable as a credit under this section exceeds the tax liability computed under this part for the taxable year, the excess shall be credited against other amounts due, if any, and the balance, if any, shall be paid from the Tax Relief and Refund Account and refunded to the taxpayer.
(g) (1) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of 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.
(2) (A) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this section, including any regulations to prevent improper claims from being filed or improper payments from being made with respect to net earnings from self-employment.
(B) The adoption of any regulations pursuant to subparagraph (A) may be adopted as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) and shall be deemed an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, these emergency regulations shall not be subject to the review and approval of the Office of Administrative Law. The regulations shall become effective immediately upon filing with the Secretary of State, and shall remain in effect until revised or repealed by the Franchise Tax Board.
(h) Notwithstanding any other law, amounts refunded pursuant to this section shall be treated in the same manner as the federal earned income refund for the purpose of determining eligibility to receive benefits under Division 9 (commencing with Section 10000) of the Welfare and Institutions Code or amounts of those benefits.
(i) (1) For the purpose of implementing the credit allowed by this section for the 2015 taxable year, the Franchise Tax Board shall be exempt from the following:
(A) Special Project Report requirements under State Administrative Manual Sections 4819.36, 4945, and 4945.2.
(B) Special Project Report requirements under Statewide Information Management Manual Section 30.
(C) Section 11.00 of the 2015 Budget Act.
(D) Sections 12101, 12101.5, 12102, and 12102.1 of the Public Contract Code.
(2) The Franchise Tax Board shall formally incorporate the scope, costs, and schedule changes associated with the implementation of the credit allowed by this section in its next anticipated Special Project Report for its Enterprise Data to Revenue Project.
(j) (1) In accordance with Section 41 of the Revenue and Taxation Code, the purpose of the California Earned Income Tax Credit is to reduce poverty among California’s poorest working families and individuals. To measure whether the credit achieves its intended purpose, the Franchise Tax Board shall annually prepare a written report on the following:
(A) The number of tax returns claiming the credit.
(B) The number of individuals represented on tax returns claiming the credit.
(C) The average credit amount on tax returns claiming the credit.
(D) The distribution of credits by number of dependents and income ranges. The income ranges shall encompass the phase-in and phaseout ranges of the credit.
(E) Using data from tax returns claiming the credit, including an estimate of the federal tax credit determined under Section 32 of the Internal Revenue Code, an estimate of the number of families who are lifted out of deep poverty by the credit and an estimate of the number of families who are lifted out of deep poverty by the combination of the credit and the federal tax credit. For the purposes of this subdivision, a family is in “deep poverty” if the income of the family is less than 50 percent of the federal poverty threshold.
(2) The Franchise Tax Board shall provide the written report to the Senate Committee on Budget and Fiscal Review, the Assembly Committee on Budget, the Senate and Assembly Committees on Appropriations, the Senate Committee on Governance and Finance, the Assembly Committee on Revenue and Taxation, and the Senate and Assembly Committees on Human Services.
(k) The tax credit allowed by this section shall be known as the California Earned Income Tax Credit.
(l) The amendments made to this section by Chapter 722 of the Statutes of 2016 shall apply to taxable years beginning on or after January 1, 2016.
(m) (1) For each taxable year beginning on or after January 1, 2017, and before January 1, 2018, if the amount of credit computed pursuant to subdivisions (a) and (b) is less than or equal to one hundred dollars ($100) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with no qualifying children, or less than or equal to two hundred fifty dollars ($250) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with one or more qualifying children, and the earned income amount is greater than or equal to the corresponding amount in the table set forth in paragraph (2) below, then in lieu of the table prescribed in paragraph (1) of subdivision (b), the credit percentage and the phaseout percentage shall be determined as follows:
In the case of an eligible individual with:
The credit percentage is:
The phaseout percentage is:
No qualifying children
2.20%1.22%
1 qualifying child
3.10%2.29%
2 qualifying children
2.13%3.45%
3 or more qualifying children
2.12%3.49%
(2) For each taxable year beginning on or after January 1, 2017, and before January 1, 2018, if the amount of credit computed pursuant to subdivisions (a) and (b) is less than or equal to one hundred dollars ($100) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with no qualifying children, or less than or equal to two hundred fifty dollars ($250) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with one or more qualifying children, then in lieu of the table prescribed in subparagraph (A) of paragraph (2) of subdivision (b), the earned income amount and the phaseout amount shall be determined as follows:
 
In the case of an eligible individual with:
The earned income amount is:
The phaseout amount is:
No qualifying children
$5,354$5,354
1 qualifying child
$9,484$9,484
2 qualifying children
$13,794$13,794
3 or more qualifying children
$13,875$13,875
(n) (1) For each taxable year beginning on or after January 1, 2018, and before January 1, 2019, if the amount of credit computed pursuant to subdivisions (a) and (b) is less than or equal to one hundred three dollars ($103) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with no qualifying children, or less than or equal to two hundred fifty-eight dollars ($258) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with one or more qualifying children, and the earned income amount is greater than or equal to the corresponding amount in the table set forth in paragraph (2) below, then in lieu of the table prescribed in paragraph (1) of subdivision (b), the credit percentage and the phaseout percentage shall be determined as follows:
In the case of an eligible individual with:
The credit percentage is:
The phaseout percentage is:
No qualifying children
2.20%1.08%
1 qualifying child
3.10%2.00%
2 qualifying children
2.13%2.82%
3 or more qualifying children
2.12%2.85%
(2) For each taxable year beginning on or after January 1, 2018, and before January 1, 2019, if the amount of credit computed pursuant to subdivisions (a) and (b) is less than or equal to one hundred three dollars ($103) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with no qualifying children, or less than or equal to two hundred fifty-eight dollars ($258) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with one or more qualifying children, then in lieu of the table prescribed in subparagraph (A) of paragraph (2) of subdivision (b), the earned income amount and the phaseout amount shall be determined as follows:
 
In the case of an eligible individual with:
The earned income amount is:
The phaseout amount is:
No qualifying children
$5,520$5,520
1 qualifying child
$9,778$9,778
2 qualifying children
$14,222$14,222
3 or more qualifying children
$14,305$14,305
(o) (1) For each taxable year beginning on or after January 1, 2019, if the amount of credit computed pursuant to subdivisions (a) and (b) is less than or equal to two hundred dollars ($200) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with no qualifying children, or less than or equal to five hundred five dollars ($505) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with one or more qualifying children, and the earned income amount is greater than or equal to the corresponding amount in the table set forth in paragraph (2) below, then in lieu of the table prescribed in paragraph (1) of subdivision (b), the credit percentage and the phaseout percentage shall be determined as follows:
In the case of an eligible individual with:
The credit percentage is:
The phaseout percentage is:
No qualifying children5.43%0.92%
1 qualifying child
6.33%2.88%
2 qualifying children
4.20%3.75%
3 or more qualifying children
4.15%3.78%
(2) For each taxable year beginning on or after January 1, 2019, if the amount of credit computed pursuant to subdivisions (a) and (b) is less than or equal to two hundred dollars ($200) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with no qualifying children, or less than or equal to five hundred five dollars ($505) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with one or more qualifying children, then in lieu of the table prescribed in subparagraph (A) of paragraph (2) of subdivision (b), the earned income amount and the phaseout amount shall be determined as follows:
In the case of an eligible individual with:
The earned income amount is:
The phaseout amount is:
No qualifying children$4,334$4,334
1 qualifying child
$9,381$9,381
2 qualifying children
$14,137$14,137
3 or more qualifying children
$14,302$14,302
(3) For taxable years beginning on or after January 1, 2020, and until and including the taxable year in which the minimum wage, as defined in paragraph (1) of subdivision (b) of Section 1182.12 of the Labor Code, is set at fifteen dollars ($15) per hour, both of the following shall occur:
(A) The amounts in paragraphs (1) and (2) shall be recomputed annually in the same manner as the recomputation of income tax brackets under subdivision (h) of Section 17041.
(B) The phaseout percentage for each of the four categories of eligible individuals shall be recalculated by the Franchise Tax Board in such a manner that, for a taxpayer with an earned income of thirty thousand dollars ($30,000), the calculated amount of credit is equal to zero.
(4) (A) For taxable years beginning after the taxable year in which the minimum wage, as defined in paragraph (1) of subdivision (b) of Section 1182.12 of the Labor Code, is set at fifteen dollars ($15) per hour, the amounts in paragraphs (1) and (2) shall be recomputed annually in the same manner as the recomputation of income tax brackets under subdivision (h) of Section 17041.
(B) For taxable years beginning after the taxable year in which the minimum wage, as defined in paragraph (1) of subdivision (b) of Section 1182.12 of the Labor Code, is set at fifteen dollars ($15) per hour, the phaseout percentages for the prior taxable year, as recalculated under subparagraph (B) of paragraph (3), shall apply.
(p) For each taxable year beginning on or after January 1, 2020, Section 32(m) of the Internal Revenue Code, relating to identification numbers, is modified as follows:
(1) By deleting “(other than a social security number issued pursuant to clause (II) (or that portion of clause (III) that relates to clause (II)) of section 205(c)(2)(B)(i) of the Social Security Act).”
(2) By substituting “federal individual taxpayer identification number or a social security number” for “social security number.”
(q) An eligible individual, eligible individual’s spouse, or qualifying child using a federal individual taxpayer identification number as authorized under subdivision (p) shall:
(1) Upon request of the Franchise Tax Board, provide:
(A) Identifying documents acceptable for purposes of obtaining a California driver’s license or identification card as authorized by subdivisions (a), (b), and (c) of Section 12801.9 of the Vehicle Code and related regulations adopted for purposes of establishing documents acceptable to prove identity.
(B) Identifying documents used to report earned income for the taxable year.
(2) Upon receiving a valid social security number issued to that individual by the Social Security Administration, notify the Franchise Tax Board, in the time and manner prescribed by the Franchise Tax Board.
(r) The Legislature finds and declares that, to the extent they are otherwise qualified for a credit under this section, undocumented persons are eligible for the tax credit authorized by this section within the meaning of subsection (d) of Section 1621 of Title 8 of the United States Code.
(s) (1) For taxable years beginning on or after January 1, 2023, if the amount of credit computed pursuant to subdivision (a), (b), or (o) for an eligible individual is less than two hundred seventy-five dollars ($275), multiplied by the earned income tax credit adjustment factor for that taxable year, the credit for the eligible individual shall be two hundred seventy-five dollars ($275), multiplied by the earned income tax credit adjustment factor for the taxable year.
(2) For taxable years beginning on or after January 1, 2023, the amount in paragraph (1) shall be recomputed annually in the same manner as the recomputation of income tax brackets under subdivision (h) of Section 17041.
(3) (A) The amount in paragraph (1), as adjusted by paragraph (2), shall be reduced by the phaseout amount, as determined by the Franchise Tax Board, for each one hundred dollars ($100), or a fraction thereof, by which the qualified taxpayer’s adjusted gross income or, if greater, earned income, exceeds the threshold amount.
(B) For purposes of this paragraph, the threshold amount shall be twenty-six thousand dollars ($26,000).
(C) For taxable years beginning after the taxable year in which the minimum wage, as specified in paragraph (1) of subdivision (b) of Section 1182.12 of the Labor Code, is set at fifteen dollars ($15) per hour, the threshold amount in subparagraph (B) shall be recomputed annually in the same manner as the recomputation of income tax brackets under subdivision (h) of Section 17041.

SEC. 3.

 Section 17053.5 of the Revenue and Taxation Code is amended to read:

17053.5.
 (a) (1) For a qualified renter, there shall be allowed a credit against the renter’s “net tax,” as defined in Section 17039. The amount of the credit shall be as follows:
(A) For spouses filing joint returns, heads of household, and surviving spouses, as defined in Section 17046, the credit shall be equal to one hundred twenty dollars ($120) if adjusted gross income is fifty thousand dollars ($50,000) or less. less, the credit shall be equal to the following:
(i) For taxable years beginning before January 1, 2023, one hundred twenty dollars ($120).
(ii) For taxable years beginning on or after January 1, 2023:
(I) Two hundred fifty dollars ($250), if the qualified renter has no dependents, as defined in Section 17056.
(II) Five hundred dollars ($500), if the qualified renter has one or more dependents, as defined in Section 17056.
(iii) For taxable years beginning on or after January 1, 2024, the credit amounts in clause (ii) shall be the amount recomputed pursuant to subdivision (k).
(B) For other individuals, the credit shall be equal to sixty dollars ($60) if adjusted gross income is twenty-five thousand dollars ($25,000) or less. less, the credit shall be equal to the following:
(i) For taxable years beginning before January 1, 2023, sixty dollars ($60).
(ii) For taxable years beginning on or after January 1, 2023:
(I) Two hundred fifty dollars ($250), if the qualified renter has no dependents, as defined in Section 17056.
(II) Five hundred dollars ($500), if the qualified renter has one or more dependents, as defined in Section 17056.
(iii) For taxable years beginning on or after January 1, 2024, the credit amounts in clause (ii) shall be the amount recomputed pursuant to subdivision (k).
(2) Except as provided in subdivision (b), spouses shall receive but only one credit under this section. If the spouses file separate returns, the credit may be taken by either or equally divided between them, except as follows:
(A) If one spouse was a resident for the entire taxable year and the other spouse was a nonresident for part or all of the taxable year, the resident spouse shall be allowed one-half the credit allowed to married persons and the nonresident spouse shall be permitted one-half the credit allowed to married persons, prorated as provided in subdivision (e).
(B) If both spouses were nonresidents for part of the taxable year, the credit allowed to married persons shall be divided equally between them subject to the proration provided in subdivision (e).
(b) For spouses, if each spouse maintained a separate place of residence and resided in this state during the entire taxable year, each spouse will be allowed one-half the full credit allowed to married persons provided in subdivision (a).
(c) For purposes of this section, a “qualified renter” means an individual who satisfies both of the following:
(1) Was a resident of this state, as defined in Section 17014.
(2) Rented and occupied premises in this state which that constituted the individual’s principal place of residence during at least 50 percent of the taxable year.
(d) “Qualified renter” does not include any of the following:
(1) An individual who for more than 50 percent of the taxable year rented and occupied premises that were exempt from property taxes, except that an individual, otherwise qualified, is deemed a qualified renter if the individual or the individual’s landlord pays possessory interest taxes, or the owner of those premises makes payments in lieu of property taxes that are substantially equivalent to property taxes paid on properties of comparable market value.
(2) An individual whose principal place of residence for more than 50 percent of the taxable year is with another person who claimed that individual as a dependent for income tax purposes.
(3) An individual who has been granted or whose spouse has been granted the homeowners’ property tax exemption during the taxable year. This paragraph does not apply to an individual whose spouse has been granted the homeowners’ property tax exemption if each spouse maintained a separate residence for the entire taxable year.
(e) An otherwise qualified renter who is a nonresident for any portion of the taxable year shall claim the credits set forth in subdivision (a) at the rate of one-twelfth of those credits for each full month that individual resided within this state during the taxable year.
(f) A person claiming the credit provided in this section shall, as part of that claim, and under penalty of perjury, furnish that information as the Franchise Tax Board prescribes on a form supplied by the board.
(g) The credit provided in this section shall be claimed on returns in the form as the Franchise Tax Board may from time to time prescribe.
(h) For purposes of this section, “premises” means a house or a dwelling unit used to provide living accommodations in a building or structure and the land incidental thereto, but does not include land only, unless the dwelling unit is a mobilehome. The credit is not allowed for any taxable year for the rental of land upon which a mobilehome is located if the mobilehome has been granted a homeowners’ exemption under Section 218 in that year.
(i) This section shall become operative on January 1, 1998, and applies to any taxable year beginning on or after January 1, 1998.
(j) For each taxable year beginning on or after January 1, 1999, the Franchise Tax Board shall recompute the adjusted gross income amounts set forth in subdivision (a). The computation shall be made as follows:
(1) The Department of Industrial Relations shall transmit annually to the Franchise Tax Board the percentage change in the California Consumer Price Index for all items from June of the prior calendar year to June of the current year, no later than August 1 of the current calendar year.
(2) The Franchise Tax Board shall compute an inflation adjustment factor by adding 100 percent to the portion of the percentage change figure which that is furnished pursuant to paragraph (1) and dividing the result by 100.
(3) The Franchise Tax Board shall multiply the adjusted gross income amount in subparagraph (B) of paragraph (1) of subdivision (a) for the preceding taxable year by the inflation adjustment factor determined in paragraph (2), and round off the resulting products to the nearest one dollar ($1).
(4) In computing the amounts adjusted gross income amount pursuant to this subdivision, the amounts adjusted gross income amount provided in subparagraph (A) of paragraph (1) of subdivision (a) shall be twice the amount provided in subparagraph (B) of paragraph (1) of subdivision (a).
(k) For each taxable year beginning on or after January 1, 2024, the Franchise Tax Board shall recompute the credit amount under clause (ii) of subparagraphs (A) and (B) of paragraph (1) of subdivision (a). The computation shall be made as follows:
(1) The Department of Industrial Relations shall transmit annually to the Franchise Tax Board the percentage change in the California Consumer Price Index for all items from June of the prior calendar year to June of the current year, no later than August 1 of the current calendar year.
(2) The Franchise Tax Board shall compute an inflation adjustment factor by adding 100 percent to the portion of the percentage change figure that is furnished pursuant to paragraph (1) and dividing the result by 100.
(3) The Franchise Tax Board shall multiply the credit amount for the immediately preceding taxable year under clause (ii) of subparagraphs (A) and (B) of paragraph (1) of subdivision (a) by the inflation adjustment factor determined in paragraph (2) and round off the resulting products to the nearest one dollar ($1).
(l) For taxable years beginning on or after January 1, 2023, if the amount allowable as a credit under this section exceeds the tax liability computed under this part for the taxable year, the excess shall be credited against other amounts due, if any, and the balance, if any, shall be paid from the Tax Relief and Refund Account and refunded to the qualified renter.
(m) For the purposes of complying with Section 41, the Legislature finds and declares as follows:
(1) The specific goals, purposes, and objectives of this section are as follows:
(A) To compensate low- and middle-income renters for the increasing rates of rent throughout the state.
(B) To restructure the credit to reflect the disproportionate burden of high rents on single-parent families.
(C) To stimulate consumer spending and economic growth by providing more disposable income to reinvest in the economy.
(2) To measure whether the credit achieves its intended purpose, beginning April 1, 2024, and annually thereafter, the Franchise Tax Board shall prepare a written report on the following:
(A) The number of taxpayers claiming the credit for the prior taxable year.
(B) The average credit amount on tax returns claiming the credit for the prior taxable year.
(3) The Franchise Tax Board shall provide the written report prepared pursuant to paragraph (2) to the Senate Committee on Budget and Fiscal Review, the Assembly Committee on Budget, the Senate and Assembly Committees on Appropriations, the Senate Committee on Governance and Finance, and the Assembly Committee on Revenue and Taxation. The report shall be submitted in compliance with Section 9795 of the Government Code.

SEC. 4.

 Section 17053.75 of the Revenue and Taxation Code is amended to read:

17053.75.
 (a) For taxable years beginning on or after January 1, 2024, and except as provided in subdivision (b), there shall be allowed to a qualified taxpayer a credit against the “net tax,” as defined in Section 17039, in an amount equal to the greater of the following:
(1) Dues paid in that taxable year by the qualified taxpayer multiplied by the workers’ tax credit adjustment factor.
(2) The amount equal to dues paid in that taxable year by the qualified taxpayer, not to exceed an amount set pursuant to subdivision (b) of up to one hundred dollars ($100), recomputed annually beginning January 1, 2025, in the same manner as the recomputation of income tax brackets under subdivision (h) of Section 17041.
(b) (1)Unless For taxable years beginning on or after January 1, 2025, unless otherwise specified in the annual Budget Act, or a bill providing for appropriations related to the annual Budget Act, enacted after May 1, 2024, the workers’ tax credit adjustment factor shall be 0 percent for that year, and the dollar amount allowed pursuant to paragraph (2) of subdivision (a) shall be zero dollars ($0) for that taxable year.

(2)It is the intent of the Legislature that the workers’ tax credit adjustment factor and the maximum dollar amount allowed pursuant to paragraph (2) of subdivision (a) shall be set in a manner to limit the annual revenue loss resulting from this section to no more than four hundred million dollars ($400,000,000).

(c) For purposes of this section, the following definitions apply:
(1) “Bona fide labor organization” means a labor organization that satisfies all of the following:
(A) Is exempt from income taxes pursuant to Section 23701a.
(B) Actually represents employees in California as to wages, hours, and working conditions.
(C) Its officers have been democratically elected by its membership or otherwise in a manner consistent with federal law.
(D) Is free of domination or interference by any employer and has received no improper assistance or support from any employer.
(2) “Dues” means the amount paid or incurred during the taxable year by a taxpayer for dues or dues equivalents paid to a bona fide labor organization.
(3) “Qualified taxpayer” means an individual who satisfies both of the following:
(A) Is represented for purposes of collective bargaining by, and who pays dues or dues equivalents to, a bona fide labor organization.
(B) Meets any of the following requirements:
(i) Has wages subject to withholding pursuant to Division 6 (commencing with Section 13000) of the Unemployment Insurance Code.
(ii) Is a provider of in-home supportive services pursuant to Article 7 (commencing with Section 12300) of Chapter 3 of Part 3 of Division 9 of the Welfare and Institutions Code, or pursuant to Section 14132.95, 14132.952, or 14132.956 of the Welfare and Institutions Code.
(iii) Is a provider of waiver personal care services pursuant to Section 14132.97 of the Welfare and Institutions Code.
(d) The credit allowed pursuant to subdivision (a) shall be in lieu of any other credit or deduction that the qualified taxpayer may otherwise be allowed under this part with respect to amounts taken into account in calculating the credit allowed by this section.
(e) If the amount allowable as a credit under this section exceeds the tax liability computed under this part for the taxable year, the excess shall be credited against other amounts due, if any, and the balance, if any, shall, upon appropriation by the Legislature, be paid from the Tax Relief and Refund Account and refunded to the qualified taxpayer.
(f) (1) For purposes of complying with Section 41, the Legislature finds and declares the following:
(A) The purpose of the credit allowed under this section is to help individuals with the cost of being a member of a union.
(B) The performance indicators for the Legislature to use when measuring whether the tax expenditure meets the goals, purposes, and objectives shall be the total number of returns claiming the credit and the aggregate dollar amount of credits claimed.
(2) (A) The Franchise Tax Board shall provide a report to the Legislature in compliance with Section 9795 of the Government Code, beginning in the 2026 calendar year and then on an annual basis each year thereafter, while the credit is in effect, on the total number of returns claiming the credit and the aggregate dollar amount of credits claimed for the most recent taxable year for which information is available.
(B) The disclosure requirements of this paragraph shall be treated as an exception to Section 19542.

SEC. 5.

 Section 23151 of the Revenue and Taxation Code is amended to read:

23151.
 (a) With the exception of banks and financial corporations, every corporation doing business within the limits of this state and not expressly exempted from taxation by the provisions of the Constitution of this state or by this part, shall annually pay to the state, for the privilege of exercising its corporate franchises within this state, a tax according to or measured by its net income, to be computed at the rate of 7.6 percent upon the basis of its net income for the next preceding income year, or if greater, the minimum tax specified in Section 23153.
(b) For calendar or fiscal years ending after June 30, 1973, the rate of tax shall be 9 percent instead of 7.6 percent as provided by subdivision (a).
(c) For calendar or fiscal years ending in 1980 to 1986, inclusive, the rate of tax shall be 9.6 percent.
(d) For calendar or fiscal years ending in 1987 to 1996, inclusive, and for any income year beginning before January 1, 1997, the tax rate shall be 9.3 percent.
(e) For any income year beginning on or after January 1, 1997, and before the income year identified in subparagraph (A) of paragraph (1) of subdivision (f), the tax rate shall be 8.84 percent. The change in rate provided in this subdivision shall be made without proration otherwise required by Section 24251.
(f) (1) For the first taxable year beginning on or after January 1, 2000, and before January 1, 2023, the tax imposed under this section shall be the sum of both of the following:
(A) A tax according to or measured by net income, to be computed at the rate of 8.84 percent upon the basis of the net income for the next preceding income year, but not less than the minimum tax specified in Section 23153.
(B) A tax according to or measured by net income, to be computed at the rate of 8.84 percent upon the basis of the net income for the first taxable year beginning on or after January 1, 2000, but not less than the minimum tax specified in Section 23153.
(2) Except as provided in paragraph (1), for taxable years beginning on or after January 1, 2000, and before January 1, 2023, the tax imposed under this section shall be a tax according to or measured by net income, to be computed at the rate of 8.84 percent upon the basis of the net income for that taxable year, but not less than the minimum tax specified in Section 23153.
(g) (1) Except as provided in paragraph (2), for taxable years beginning on or after January 1, 2023, the tax imposed under this section shall be as follows, but not less than the minimum tax specified in Section 23153:
For taxable income:The tax rate is:
Up to and including $1,500,0006.63%
Over $1,500,00010.99%
(2) In any taxable year in which the federal corporate tax rate is 32.85 percent or greater, the tax for taxable income over one million five hundred thousand dollars ($1,500,000) shall be computed at a rate of 8.84 percent.

SEC. 6.

 Section 23153 of the Revenue and Taxation Code is amended to read:

23153.
 (a) Every corporation described in subdivision (b) shall be subject to the minimum franchise tax specified in subdivision (d) from the earlier of the date of incorporation, qualification, or commencing to do business within this state, until the effective date of dissolution or withdrawal as provided in Section 23331 or, if later, the date the corporation ceases to do business within the limits of this state.
(b) Unless expressly exempted by this part or the California Constitution, subdivision (a) shall apply to each of the following:
(1) Every corporation that is incorporated under the laws of this state.
(2) Every corporation that is qualified to transact intrastate business in this state pursuant to Chapter 21 (commencing with Section 2100) of Division 1 of Title 1 of the Corporations Code.
(3) Every corporation that is doing business in this state.
(c) The following entities are not subject to the minimum franchise tax specified in this section:
(1) Credit unions.
(2) Nonprofit cooperative associations organized pursuant to Chapter 1 (commencing with Section 54001) of Division 20 of the Food and Agricultural Code that have been issued the certificate of the board of supervisors prepared pursuant to Section 54042 of the Food and Agricultural Code. The association shall be exempt from the minimum franchise tax for five consecutive taxable years, commencing with the first taxable year for which the certificate is issued pursuant to subdivision (b) of Section 54042 of the Food and Agricultural Code. This paragraph only applies to nonprofit cooperative associations organized on or after January 1, 1994.
(d) (1) Except as provided in paragraph (2), paragraph (1) of subdivision (f) of Section 23151, paragraph (1) of subdivision (f) of Section 23181, and paragraph (1) of subdivision (c) of Section 23183, corporations subject to the minimum franchise tax shall pay annually to the state a minimum franchise tax of eight hundred dollars ($800). as follows:
(A) For taxable years before January 1, 2023, eight hundred dollars ($800).
(B) For taxable years beginning on or after January 1, 2023, six hundred dollars ($600).
(2) The minimum franchise tax shall be twenty-five dollars ($25) for each of the following:
(A) A corporation formed under the laws of this state whose principal business when formed was gold mining, which is inactive and has not done business within the limits of the state since 1950.
(B) A corporation formed under the laws of this state whose principal business when formed was quicksilver mining, which is inactive and has not done business within the limits of the state since 1971, or has been inactive for a period of 24 consecutive months or more.
(3) For purposes of paragraph (2), a corporation shall not be considered to have done business if it engages in business other than mining.
(e) Notwithstanding subdivision (a), for taxable years beginning on or after January 1, 1999, and before January 1, 2000, every “qualified new corporation” shall pay annually to the state a minimum franchise tax of five hundred dollars ($500) for the second taxable year. This subdivision shall apply to any corporation that is a qualified new corporation and is incorporated on or after January 1, 1999, and before January 1, 2000.
(1) The determination of the gross receipts of a corporation, for purposes of this subdivision, shall be made by including the gross receipts of each member of the commonly controlled group, as defined in Section 25105, of which the corporation is a member.
(2) “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.
(3) “Qualified new corporation” means a corporation that is incorporated under the laws of this state or has qualified to transact intrastate business in this state, that begins business operations at or after the time of its incorporation and that reasonably estimates that it will have gross receipts, less returns and allowances, reportable to this state for the taxable year of one million dollars ($1,000,000) or less. “Qualified new corporation” does not include any corporation that began business operations as a sole proprietorship, a partnership, or any other form of business entity prior to its incorporation. This subdivision shall not apply to any corporation that reorganizes solely for the purpose of reducing its minimum franchise tax.
(4) This subdivision shall not apply to limited partnerships, as defined in Section 17935, limited liability companies, as defined in Section 17941, limited liability partnerships, as described in Section 17948, charitable organizations, as described in Section 23703, regulated investment companies, as defined in Section 851 of the Internal Revenue Code, real estate investment trusts, as defined in Section 856 of the Internal Revenue Code, real estate mortgage investment conduits, as defined in Section 860D of the Internal Revenue Code, qualified Subchapter S subsidiaries, as defined in Section 1361(b)(3) of the Internal Revenue Code, or to the formation of any subsidiary corporation, to the extent applicable.
(5) For any taxable year beginning on or after January 1, 1999, and before January 1, 2000, if a corporation has qualified to pay five hundred dollars ($500) for the second taxable year under this subdivision, but in its second taxable year, the corporation’s gross receipts, as determined under paragraphs (1) and (2), exceed one million dollars ($1,000,000), an additional tax in the amount equal to three hundred dollars ($300) for the second taxable year shall be due and payable by the corporation on the due date of its return, without regard to extension, for that year.
(f) (1) Notwithstanding subdivision (a), every corporation that incorporates or qualifies to do business in this state on or after January 1, 2000, shall not be subject to the minimum franchise tax for its first taxable year.
(2) This subdivision shall not apply to limited partnerships, as defined in Section 17935, limited liability companies, as defined in Section 17941, limited liability partnerships, as described in Section 17948, charitable organizations, as described in Section 23703, regulated investment companies, as defined in Section 851 of the Internal Revenue Code, real estate investment trusts, as defined in Section 856 of the Internal Revenue Code, real estate mortgage investment conduits, as defined in Section 860D of the Internal Revenue Code, and qualified Subchapter S subsidiaries, as defined in Section 1361(b)(3) of the Internal Revenue Code, to the extent applicable.
(3) This subdivision shall not apply to any corporation that reorganizes solely for the purpose of avoiding payment of its minimum franchise tax.
(g) Notwithstanding subdivision (a), a domestic corporation, as defined in Section 167 of the Corporations Code, that files a certificate of dissolution in the office of the Secretary of State pursuant to subdivision (b) of Section 1905 of the Corporations Code, prior to its amendment by the act amending this subdivision, and that does not thereafter do business shall not be subject to the minimum franchise tax for taxable years beginning on or after the date of that filing.
(h) The minimum franchise tax imposed by paragraph (1) of subdivision (d) shall not be increased by the Legislature by more than 10 percent during any calendar year.
(i) (1) Notwithstanding subdivision (a), for taxable years beginning on or after January 1, 2020, a corporation that is a small business solely owned by a deployed member of the United States Armed Forces shall not be subject to the minimum franchise tax for any taxable year the owner is deployed and the corporation operates at a loss or ceases operation.
(2) The Franchise Tax Board may promulgate regulations as necessary or appropriate to carry out the purposes of this subdivision, including a definition for “ceases operation.”
(3) For the purposes of this subdivision, all of the following definitions apply:
(A) “Deployed” means being called to active duty or active service during a period when a Presidential Executive order specifies that the United States is engaged in combat or homeland defense. “Deployed” does not include either of the following:
(i) Temporary duty for the sole purpose of training or processing.
(ii) A permanent change of station.
(B) “Operates at a loss” means negative net income as defined in Section 24341.
(C) “Small business” means a corporation with total income from all sources derived from, or attributable to, the state of two hundred fifty thousand dollars ($250,000) or less.
(4) This subdivision shall become inoperative for taxable years beginning on or after January 1, 2030.

SEC. 7.

 Section 23802 of the Revenue and Taxation Code is amended to read:

23802.
 (a) Section 1363(a) of the Internal Revenue Code, relating to the taxability of an “S” corporation does not apply.
(b) Corporations that are “S” corporations under this chapter shall continue to be subject to the taxes imposed under Chapter 2 (commencing with Section 23101) and Chapter 3 (commencing with Section 23501), except as follows:
(1) The tax imposed under Section 23151 or 23501 shall be imposed at a rate of 1 12 percent rather than the rate specified in those sections. as follows:
For taxable income:The tax rate is:
Up to and including $1,500,0001.125%
Over $1,500,0001.5%
(2) In the case of an “S” corporation that is also a financial corporation, the rate of tax specified in paragraph (1) shall be increased by the excess of the rate imposed under Section 23183 over the rate imposed under Section 23151.
(c) An “S” corporation is subject to the minimum franchise tax imposed under Section 23153.
(d) (1) For purposes of subdivision (b), an “S” corporation shall be allowed a deduction under Section 24416 or 24416.1 (relating to net operating loss deductions), but only with respect to losses incurred during periods in which the corporation is an “S” corporation for purposes of this part.
(2) Section 1371(b) of the Internal Revenue Code, relating to denial of carryovers between “C” years and “S” years, applies for purposes of the tax imposed under subdivision (b), except as provided in paragraph (1).
(3) The provisions of this subdivision do not affect the amount of any item of income or loss computed in accordance with the provisions of Section 1366 of the Internal Revenue Code, relating to pass-thru of items to shareholders.
(4) For purposes of subdivision (b) of Section 17276, relating to limitations on loss carryovers, losses passed through to shareholders of an “S” corporation, to the extent otherwise allowable without application of that subdivision, shall be fully included in the net operating loss of that shareholder and then that subdivision shall be applied to the entire net operating loss.
(e) For purposes of computing the taxes specified in subdivision (b), an “S” corporation shall be allowed a deduction from income for built-in gains and passive investment income for which a tax has been imposed under this part in accordance with the provisions of Section 1374 of the Internal Revenue Code, relating to tax imposed on certain built-in gains, or Section 1375 of the Internal Revenue Code, relating to tax imposed on passive investment income.
(f) For purposes of computing taxes imposed under this part, as provided in subdivision (b):
(1) An “S” corporation shall compute its deductions for amortization and depreciation in accordance with the provisions of Part 10 (commencing with Section 17001) of Division 2.
(2) Section 465 of the Internal Revenue Code, relating to limitation of deductions to the amount at risk, shall be applied in the same manner as in the case of an individual.
(3) (A) Section 469 of the Internal Revenue Code, relating to limitations on passive activity losses and credits, shall be applied in the same manner as in the case of an individual. For purposes of the tax imposed under Section 23151 or 23501, as modified by this section, material participation shall be determined in accordance with Section 469(h) of the Internal Revenue Code, relating to certain closely held “C” corporations and personal service corporations.
(B) For purposes of this paragraph, the “adjusted gross income” of the “S” corporation shall be equal to its “net income,” as determined under Section 24341 with the modifications required by this subdivision, except that a deduction shall not be allowed for contributions allowed by Section 24357.
(4) The deduction for bad debts under paragraph (2) of subdivision (a) of Section 24348 shall not be allowed to an “S” corporation.
(g) (1) The provisions of Section 1363(d) of the Internal Revenue Code, relating to recapture of LIFO benefits, shall be modified for purposes of this part to refer to Section 19101 in lieu of Section 6601 of the Internal Revenue Code.
(2) For purposes of Section 19023, relating to the definition of “estimated tax,” and Section 19142, relating to an addition to tax for underpayment of estimated tax, the tax imposed pursuant to this subdivision is not a tax imposed by this part.

SEC. 8.

 The Legislature hereby finds and declares that the refunds authorized by Section 17053.5 of the Revenue and Taxation Code, as amended by this act, serve the public purposes of compensating low- and middle-income renters for the increasing rates of rent throughout the state, restructuring the credit to reflect the disproportionate burden of high rents on single-parent families, and stimulating consumer spending and economic growth by providing more disposable income to reinvest in the economy, and do not constitute a gift of public funds within the meaning of Section 6 of Article XVI of the California Constitution.

SEC. 9.

 The Legislature hereby finds and declares that the refunds authorized by Section 17053.75 of the Revenue and Taxation Code, as amended by this act, serve the public purpose of assisting individuals with the cost of being a member of a union, and do not constitute a gift of public funds within the meaning of Section 6 of Article XVI of the California Constitution.

SEC. 10.

 This act is a bill providing for appropriations related to the Budget Bill within the meaning of subdivision (e) of Section 12 of Article IV of the California Constitution, has been identified as related to the budget in the Budget Bill, and shall take effect immediately.
SECTION 1.Section 17144.8 of the Revenue and Taxation Code is amended to read:
17144.8.

(a)Section 108(f)(5) of the Internal Revenue Code, relating to discharges on account of death or disability, as added by Section 11031(a) of the federal Tax Cuts and Jobs Act (Public Law 115-97), shall apply except as otherwise provided.

(b)Section 108(f)(5)(A) of the Internal Revenue Code, as added by Section 11031(a) of the federal Tax Cuts and Jobs Act (Public Law 115-97), is modified by substituting the phrase “after December 31, 2018,” in lieu of the phrase “after December 31, 2017, and before January 1, 2026.”

(c)For taxable years beginning on or after January 1, 2021, and before January 1, 2026, the amendments made by Section 9675(a) of the American Rescue Plan Act of 2021 (Public Law 117-2) to Section 108(f)(5) of the Internal Revenue Code relating to the special rule for discharges in 2021 through 2025 shall apply.

SEC. 2.

It is the intent of the Legislature to comply with Section 41.

SEC. 3.

The Legislature hereby finds and declares that the exclusion authorized by Section 17144.8 of the Revenue and Taxation Code, as amended by this act, serves the public purpose of conforming with federal tax law for state tax purposes in order to lessen the tax burden on individuals who have their student loans discharged and does not constitute a gift of public funds within the meaning of Section 6 of Article XVI of the California Constitution.