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AB-820 Corporation Tax Law: banks and financial corporations: exclusions: interest income.(2021-2022)

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Date Published: 01/12/2022 09:00 PM
AB820:v96#DOCUMENT

Amended  IN  Assembly  January 12, 2022
Amended  IN  Assembly  January 03, 2022
Amended  IN  Assembly  March 18, 2021

CALIFORNIA LEGISLATURE— 2021–2022 REGULAR SESSION

Assembly Bill
No. 820


Introduced by Assembly Member Cooley
(Coauthors: Assembly Members Gallagher and Kiley)

February 16, 2021


An act to add and repeal Sections 24313.5 and 25128.1 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


AB 820, as amended, Cooley. Corporation Tax Law: banks and financial corporations: exclusions: interest income.
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.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

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


SECTION 1.

 Section 24313.5 is added to the Revenue and Taxation Code, to read:

24313.5.
 (a) For taxable years beginning on or after January 1, 2022, and before January 1, 2027, gross income does not include the amount of qualified interest income generated by a qualified taxpayer.
(b) For purposes of this section, the following definitions shall apply:
(1) “Full-time equivalent” means either of the following:
(A) In the case of a full-time employee paid hourly wages, the total number of hours worked for the qualified taxpayer by the employee, not to exceed 2,000 hours per employee, divided by 2000.
(B) In the case of a salaried full-time employee, the total number of weeks worked for the qualified taxpayer by the employee divided by 52.
(2) “Qualified interest income” means interest income that a qualified taxpayer generates on a qualified loan during the taxable year.
(3) “Qualified loan” means a loan of one million dollars ($1,000,000) or less that is made by the qualified taxpayer to a qualified small business on or after March 15, 2020, but prior to January 1, 2025. However, a “qualified loan” shall not include a loan that is backed by any local, state, or federal government funds.
(4) “Qualified small business” means a business that meets all of the following requirements:
(A) Has 50 or fewer full-time or full-time equivalent employees on the date of the loan application to the qualified taxpayer.
(B) Experienced an annual loss in net income of 10 percent or more based on net income from January 1, 2020, to December 31, 2020, inclusive, compared to net income from January 1, 2021, to December 31, 2021, inclusive.
(C) Is located in the state.
(5) “Qualified taxpayer” means a bank or financial corporation, as those terms are used in Article 3 (commencing with Section 23181) of Chapter 2 of this part, that generates business income that is solely derived from or attributable to sources within this state and is therefore not subject to apportionment pursuant to subdivision (b) of Section 25128.
(c) This section shall remain in effect only until December 1, 2027, and as of that date is repealed.

SEC. 2.

 Section 25128.1 is added to the Revenue and Taxation Code, to read:

25128.1.
 (a) Notwithstanding subdivision (b) of Section 25128, for taxable years beginning on or after January 1, 2022, and before January 1, 2027, a qualified taxpayer that apportions its business income under subdivision (b) of Section 25128 shall exclude the amount of qualified interest income from its calculation of the sales factor under subdivision (b) of that section.
(b) For purposes of this section, the following definitions shall apply:
(1) “Full-time equivalent” means either of the following:
(A) In the case of a full-time employee paid hourly wages, the total number of hours worked for the qualified taxpayer by the employee, not to exceed 2,000 hours per employee, divided by 2000.
(B) In the case of a salaried full-time employee, the total number of weeks worked for the qualified taxpayer by the employee divided by 52.
(2) “Qualified interest income” means interest income that a qualified taxpayer generates on a qualified loan during the taxable year and that would be subject to apportionment under subdivision (b) of Section 25128 but for the application of this section.
(3) “Qualified loan” means a loan of one million dollars ($1,000,000) or less that is made by the qualified taxpayer to a qualified small business on or after March 15, 2020, but prior to January 1, 2025. However, a “qualified loan” shall not include any loan that is backed by any local, state, or federal government funds.
(4) “Qualified small business” means a business that meets all of the following requirements:
(A) Has 50 or fewer full-time or full-time equivalent employees on the date of the loan application to the qualified taxpayer.
(B) Experienced an annual loss in net income of 10 percent or more based on net income from January 1, 2020, to December 31, 2020, inclusive, compared to net income from January 1, 2021, to December 31, 2021, inclusive.
(C) Is located in the state.
(5) “Qualified taxpayer” means a bank or financial corporation, as those terms are used in Article 3 (commencing with Section 23181) of Chapter 2 of this part, that generates income that is derived from or attributable to sources within and without this state and that is determined pursuant to subdivision (b) of Section 25128.
(c) This section shall remain in effect only until December 1, 2027, and as of that date is repealed.

SEC. 3.

 For purposes of complying with Section 41 of the Revenue and Taxation Code, with respect to Sections 24313.5 and 25128.1 of the Revenue and Taxation Code, as added by this act (hereafter “the tax benefits”), the Legislature finds and declares all of the following:
(a) The specific goal, purpose, and objective that the tax benefits will achieve is to encourage financial institutions to issue loans to small businesses in the state.
(b) Detailed performance indicators for the Legislature to use in determining whether the tax benefits meet the goal, purpose, and objective described in subdivision (a) is the amount of qualified interest income, as defined in Section 25128.1 of the Revenue and Taxation Code, excluded from business income apportionment calculations, the number of banks and financial corporations using the tax benefits to apportion business income, and the number of banks and financial corporations excluding qualified interest income, as defined in Section 24313.5 of the Revenue and Taxation Code, from gross income.
(c) The Legislative Analyst’s Office shall collaborate with the Franchise Tax Board to analyze whether the tax benefits meet the goal, purpose, and objective described in subdivision (a) and shall issue, in compliance with Section 9795 of the Government Code and by December 1, 2028, a report on the analysis to the Legislature.
(d) The data collection requirements for determining whether the tax benefits meet the specific goal, purpose, and objective described in subdivision (a) are:
(1) To assist the Legislature in determining whether the tax benefits meet the specific goal, purpose, and objective described in subdivision (a), and in order to carry out its duties pursuant to subdivision (c), the Legislative Analyst’s Office may request information from the Franchise Tax Board.
(2) (A) The Franchise Tax Board shall provide any available data requested by the Legislative Analyst’s Office pursuant to this subdivision.
(B) The disclosure provisions of this paragraph shall be treated as an exception to Section 19542 under Article 2 (commencing with Section 19542) of Chapter 7 of Part 10.2 of Division 2 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.