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AB-3197 Property tax: exemptions: personal property used in space flight.(2017-2018)

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Date Published: 03/23/2018 04:00 AM
AB3197:v98#DOCUMENT

Amended  IN  Assembly  March 22, 2018

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Assembly Bill
No. 3197


Introduced by Assembly Member Burke
(Principal coauthor: Assembly Member Lackey)
(Coauthor: Senator Wilk)

February 16, 2018


An act to amend Section 23609 of the Revenue and Taxation Code, relating to taxation. An act to amend Section 242 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


AB 3197, as amended, Burke. Corporation taxes. Property tax: exemptions: personal property used in space flight.
The California Constitution authorizes the Legislature to classify personal property for differential taxation or for exemption by means of a statute approved by a 2/3 vote of the membership of each house. Pursuant to this constitutional authorization, existing property tax law, for the January 1, 2014, lien date to and including the January 1, 2024, lien date, exempts qualified property, as defined, for use in space flight, as specified. Existing law repeals this exemption as of July 1, 2025.
This bill would extend to an unspecified date the operation of the property tax exemption for qualified property used in space flight. By extending the operation of this exemption, this bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.
Existing law requires the state to reimburse local agencies annually for certain property tax revenues lost as a result of any exemption or classification of property for purposes of ad valorem property taxation.
This bill would provide that, notwithstanding those provisions, no appropriation is made and the state shall not reimburse local agencies for property tax revenues lost by them pursuant to the bill.
This bill would take effect immediately as a tax levy.

The Corporation Tax Law imposes taxes upon, according to, or measured by, net income, as specified. The Corporation Tax Law, in modified conformity to a credit allowed under federal law, allows a credit against taxes imposed by that law for increasing research expenses, as defined.

This bill would make nonsubstantive changes to the provisions allowing that credit.

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

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


SECTION 1.

 Section 242 of the Revenue and Taxation Code is amended to read:

242.
 (a) There is exempted from the taxes imposed by this part qualified property for use in space flight.
(b) For purposes of this section:
(1) “Qualified property” means any of the following:
(A) Tangible personal property, whether raw materials, work in process or finished goods, that has, or upon manufacture, assembly, or installation has, space flight capacity, including, but not limited to, an orbital space facility, space propulsion system, space vehicle, launch vehicle, satellite, or space station of any kind, and any component thereof, regardless of whether that property is to be ultimately returned to this state.
(B) Fuel of a quality that is not adaptable for use in ordinary motor vehicles, but is produced, sold, and used exclusively for space flight.
(2) “Space flight” means any flight designed for suborbital, orbital, or interplanetary travel by a space vehicle, satellite, space facility, or space station of any kind.
(c) The exemption established by this section shall not be denied by reason of failure, postponement, or cancellation of a launch of a space vehicle, satellite, space facility, or space station of any kind, or the destruction of any launch vehicle or any component thereof, of a launch vehicle, but the exemption shall not apply to any material that is not intended to be launched into space.
(d) This section shall be operative from the January 1, 2014, lien date to, and including, the January 1, 2024, January 1, ___, lien date, and is inoperative for any lien date thereafter.
(e) A taxpayer shall provide, upon request of the assessor, evidence that the qualified property exempted from the taxes imposed by this part pursuant to this section has been or will be used as described in subparagraph (A) of paragraph (1) of subdivision (b).
(f) The exemption provided by this section from the taxes imposed by this part shall be limited to taxpayers that have a primary business purpose in space flight activities.
(g) This section shall remain in effect only until July 1, 2025, July 1, ___, and as of that date is repealed.

SEC. 2.

  If the Commission on State Mandates determines that this act contains costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code.

SEC. 3.

  Notwithstanding Section 2229 of the Revenue and Taxation Code, no appropriation is made by this act and the state shall not reimburse any local agency for any property tax revenues lost by it pursuant to this act.

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.
SECTION 1.Section 23609 of the Revenue and Taxation Code is amended to read:
23609.

For each taxable year beginning on or after January 1, 1987, there shall be allowed as a credit against the “tax,” as defined by Section 23036, an amount determined in accordance with Section 41 of the Internal Revenue Code, relating to credit for increasing research activities, except as follows:

(a)For each taxable year beginning before January 1, 1997, both of the following modifications shall apply:

(1)The reference to “20 percent” in Section 41(a)(1) of the Internal Revenue Code is modified to read “8 percent.”

(2)The reference to “20 percent” in Section 41(a)(2) of the Internal Revenue Code is modified to read “12 percent.”

(b)(1)For each taxable year beginning on or after January 1, 1997, and before January 1, 1999, both of the following modifications shall apply:

(A)The reference to “20 percent” in Section 41(a)(1) of the Internal Revenue Code is modified to read “11 percent.”

(B)The reference to “20 percent” in Section 41(a)(2) of the Internal Revenue Code is modified to read “24 percent.”

(2)For each taxable year beginning on or after January 1, 1999, and before January 1, 2000, both of the following shall apply:

(A)The reference to “20 percent” in Section 41(a)(1) of the Internal Revenue Code is modified to read “12 percent.”

(B)The reference to “20 percent” in Section 41(a)(2) of the Internal Revenue Code is modified to read “24 percent.”

(3)For each taxable year beginning on or after January 1, 2000, both of the following shall apply:

(A)The reference to “20 percent” in Section 41(a)(1) of the Internal Revenue Code is modified to read “15 percent.”

(B)The reference to “20 percent” in Section 41(a)(2) of the Internal Revenue Code is modified to read “24 percent.”

(c)(1)With respect to any expense paid or incurred after the operative date of Section 6378, Section 41(b)(1) of the Internal Revenue Code, relating to qualified research expenses, is modified to exclude from the definition of “qualified research expense” any amount paid or incurred for tangible personal property that is eligible for the exemption from sales or use tax provided by Section 6378.

(2)“Qualified research” and “basic research” shall include only research conducted in California.

(d)The provisions of Section 41(e)(7)(A) of the Internal Revenue Code, relating to basic research, shall be modified so that “basic research,” for purposes of this section, includes any basic or applied research including scientific inquiry or original investigation for the advancement of scientific or engineering knowledge or the improved effectiveness of commercial products, except that the term does not include any of the following:

(1)Basic research conducted outside California.

(2)Basic research in the social sciences, arts, or humanities.

(3)Basic research for the purpose of improving a commercial product if the improvements relate to style, taste, cosmetic, or seasonal design factors.

(4)Any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas).

(e)(1)In the case of a taxpayer engaged in any biopharmaceutical research activities that are described in codes 2833 to 2836, inclusive, or any research activities that are described in codes 3826, 3829, or 3841 to 3845, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, or any other biotechnology research and development activities, the provisions of Section 41(e)(6) of the Internal Revenue Code, relating to qualified organization, shall be modified to include both of the following:

(A)A qualified organization as described in Section 170(b)(1)(A)(iii) of the Internal Revenue Code and owned by an institution of higher education as described in Section 3304(f) of the Internal Revenue Code, relating to definition of institution of higher education.

(B)A charitable research hospital owned by an organization that is described in Section 501(c)(3) of the Internal Revenue Code, is exempt from taxation under Section 501(a) of the Internal Revenue Code, relating to exemption from taxation, is not a private foundation, is designated a “specialized laboratory cancer center,” and has received Clinical Cancer Research Center status from the National Cancer Institute.

(2)For purposes of this subdivision:

(A)“Biopharmaceutical research activities” means those activities that use organisms or materials derived from organisms, and their cellular, subcellular, or molecular components, in order to provide pharmaceutical products for human or animal therapeutics and diagnostics. Biopharmaceutical activities make use of living organisms to make commercial products, as opposed to pharmaceutical activities that make use of chemical compounds to produce commercial products.

(B)“Other biotechnology research and development activities” means research and development activities consisting of the application of recombinant DNA technology to produce commercial products, as well as research and development activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.

(f)In the case where the credit allowed by this section exceeds the “tax,” the excess may be carried over to reduce the “tax” in the following year, and succeeding years if necessary, until the credit has been exhausted.

(g)For each taxable year beginning on or after January 1, 1998, the reference to “Section 501(a)” in Section 41(b)(3)(C) of the Internal Revenue Code, relating to amounts paid to certain research consortia, is modified to read “this part or Part 10 (commencing with Section 17001).”

(h)(1)For each taxable year beginning on or after January 1, 2000:

(A)The reference to “3 percent” in Section 41(c)(4)(A)(i) of the Internal Revenue Code is modified to read “one and forty-nine hundredths of one percent.”

(B)The reference to “4 percent” in Section 41(c)(4)(A)(ii) of the Internal Revenue Code is modified to read “one and ninety-eight hundredths of one percent.”

(C)The reference to “5 percent” in Section 41(c)(4)(A)(iii) of the Internal Revenue Code is modified to read “two and forty-eight hundredths of one percent.”

(2)Section 41(c)(4)(B) of the Internal Revenue Code, relating to election, shall not apply and in lieu thereof an election under Section 41(c)(4)(A) of the Internal Revenue Code, relating to in general, may be made for any taxable year of the taxpayer beginning on or after January 1, 1998. That election shall apply to the taxable year for which made and all succeeding taxable years unless revoked with the consent of the Franchise Tax Board.

(3)Section 41(c)(7) of the Internal Revenue Code, relating to gross receipts, is modified to take into account only those gross receipts from the sale of property held primarily for sale to customers in the ordinary course of the taxpayer’s trade or business that is delivered or shipped to a purchaser within this state, regardless of f.o.b. point or any other condition of the sale.

(4)Section 41(c)(5) of the Internal Revenue Code, relating to election of alternative simplified credit, shall not apply.

(i)Section 41(h) of the Internal Revenue Code, relating to termination, shall not apply.

(j)Section 41(g) of the Internal Revenue Code, relating to special rule for pass-thru of credit, is modified by each of the following:

(1)The last sentence shall not apply.

(2)If the amount determined under Section 41(a) of the Internal Revenue Code, relating to general rule, for any taxable year exceeds the limitation of Section 41(g) of the Internal Revenue Code, that amount may be carried over to other taxable years under the rules of subdivision (f), except that the limitation of Section 41(g) of the Internal Revenue Code, relating to special rule for pass-thru of credit, shall be taken into account in each subsequent taxable year.

(k)Section 41(a)(3) of the Internal Revenue Code shall not apply.

(l)Section 41(b)(3)(D) of the Internal Revenue Code, relating to amounts paid to eligible small businesses, universities, and Federal laboratories, shall not apply.

(m)Section 41(f)(6) of the Internal Revenue Code, relating to energy research consortium, shall not apply.