The Corporation Tax Law imposes on every bank and specified financial corporations doing business in the state a tax according to or measured by net income, as provided. That law defines net income as gross income, computed as provided, less allowable deductions. That law also provides various exclusions from gross income.

Under that law, when the income of a taxpayer subject to a tax under the Corporation Tax Law is derived from or attributable to sources both within and without the state, the tax is required to be measured by the net income derived from or attributable to sources within the state in accordance with specified procedures. Under that law, in the case of an apportioning trade or business that derives more than 50% of its gross business receipts from conducting one or more qualified business activities, which includes savings and loan activities and banking or financial business activities, business income is apportioned in accordance with a 3-factor formula. Under the 3-factor formula, the specified apportioning trade or business is required to multiply business income by a fraction, the numerator of which is the property factor plus the payroll factor plus the sales factor, and the denominator of which is 3. Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives the tax expenditure will achieve, detailed performance indicators, and data collection requirements.

This bill would require, for taxable years beginning on or after January 1, 2022, and before January 1, 2027, a qualified taxpayer that apportions its business income under the 3-factor formula described above to exclude the amount of qualified interest income from its calculation of the sales factor under the 3-factor formula. The bill would define a qualified taxpayer as a bank or financial corporation, as defined, that generates business income that is derived from or attributable to sources within and without this state and that is determined pursuant to the 3-factor formula. The bill would define qualified interest income as interest income that a qualified taxpayer generates on a qualified loan, as defined, during the taxable year and that would be subject to apportionment under the 3-factor formula but for the application of the bill’s provisions.

This bill would also provide that, for taxable years beginning on or after January 1, 2022, gross income does not include the amount of qualified interest income, which is defined as interest income that a qualified taxpayer generates on a qualified loan during the taxable year, generated by the qualified taxpayer. The bill would define a qualified taxpayer for this purpose as a bank or financial corporation that generates business income that is solely derived from or attributable to sources within this state.

This bill would provide findings to comply with the additional information requirement for any bill authorizing a new tax expenditure.

This bill would take effect immediately as a tax levy.