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AB-593 Income taxes: net operating losses: tax credits: research, development, and testing for diseases.(2021-2022)



Current Version: 04/20/21 - Amended Assembly

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AB593:v98#DOCUMENT

Amended  IN  Assembly  April 20, 2021

CALIFORNIA LEGISLATURE— 2021–2022 REGULAR SESSION

Assembly Bill
No. 593

Introduced by Assembly Members Petrie-Norris, Daly, Irwin, and Mullin
(Principal coauthor: Assembly Member Cooper)
(Principal coauthor: Senator Pan)
(Coauthors: Assembly Members Aguiar-Curry, Bauer-Kahan, Berman, Choi, Cunningham, Davies, Frazier, Gray, Grayson, Levine, Low, Maienschein, and Waldron Mayes, Patterson, Luz Rivas, Salas, Seyarto, Valladares, Villapudua, Voepel, Waldron, and Ward)
(Coauthors: Senators Dodd and Min Bates, Dodd, Min, and Wilk)

February 11, 2021

An act to amend Sections 17039.3, 17276.23, and 23036.3 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


AB 593, as amended, Petrie-Norris. Income taxes: net operating losses: tax credits: research, development, and testing for diseases.
Existing law, the Personal Income Tax Law and Corporation Tax Law, in modified conformity with federal income tax laws, generally allow various deductions in computing the income that is subject to taxes imposed by those laws, including a deduction for a net operating loss as specified. Existing law suspends the deduction for a net operating loss, as specified, for taxable years beginning on or after January 1, 2020, and before January 1, 2023.
The Personal Income Tax Law and Corporation Tax Law generally authorize various credits against the taxes imposed by those laws. Existing law provides that, except as specified, the total credits allowable under those laws may not reduce the taxes imposed by those laws by more than $5,000,000, as provided, for taxable years beginning on or after January 1, 2020, and before January 1, 2023.
This bill, the Golden State Innovation Act of 2021, would, for taxable years beginning on or after January 1, 2021, and before January 1, 2023, exclude a taxpayer that performs clinical, biomedical, or other research, development, or testing needed for COVID-19 or other diseases research and development in biotechnology, as described, from the above-described suspension of the deduction for net operating losses and the above-described limitation on the total credits allowable.
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.
The bill also would include additional information required 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.

 This act shall be known, and may be cited as, the Golden State Innovation Act of 2021.

SEC. 2.

 Section 17039.3 of the Revenue and Taxation Code is amended to read:

17039.3.
 (a) Notwithstanding any provision of this part or Part 10.2 (commencing with Section 18401) to the contrary, for taxpayers not required to be included in a combined report under Section 25101 or 25110, or taxpayers not authorized to be included in a combined report under Section 25101.15, for each taxable year beginning on or after January 1, 2020, and before January 1, 2023, the total of all business credits otherwise allowable under any provision of Chapter 2 (commencing with Section 17041), including the carryover of any business credit under a former provision of that chapter, for the taxable year shall not reduce the “net tax,” as defined in Section 17039, by more than five million dollars ($5,000,000).
(b) Notwithstanding any provision of this part or Part 10.2 (commencing with Section 18401) to the contrary, for taxpayers required to be included in a combined report under Section 25101 or 25110, or taxpayers authorized to be included in a combined report under Section 25101.15, for each taxable year beginning on or after January 1, 2020, and before January 1, 2023, the total of all business credits otherwise allowable under any provision of Chapter 2 (commencing with Section 17041), including the carryover of any business credit under a former provision of that chapter, by all members of the combined report shall not reduce the aggregate amount of “tax,” as defined in Section 23036, of all members of the combined report by more than five million dollars ($5,000,000).
(c) For purposes of this section, “business credit” means a credit allowable under any provision of Chapter 2 (commencing with Section 17041) other than the following credits:
(1) The credit allowed by Section 17052 (relating to credit for earned income).
(2) The credit allowed by Section 17052.1 (relating to credit for young child).
(3) The credit allowed by Section 17052.6 (relating to credit for household and dependent care).
(4) The credit allowed by Section 17052.25 (relating to credit for adoption costs).
(5) The credit allowed by Section 17053.5 (relating to renter’s tax credit).
(6) The credit allowed by Section 17054 (relating to credit for personal exemption).
(7) The credit allowed by Section 17054.5 (relating to credit for qualified joint custody head of household and a qualified taxpayer with a dependent parent).
(8) The credit allowed by Section 17054.7 (relating to credit for qualified senior head of household).
(9) The credit allowed by Section 17058 (relating to credit for low-income housing).
(10) The credit allowed by Section 17061 (relating to refunds pursuant to the Unemployment Insurance Code).
(d) Any amounts included in an election pursuant to Section 6902.5, relating to an irrevocable election to apply credit amounts under Section 17053.85, 17053.95, 17053.98, 23685, 23695, or 23698 against qualified sales and use tax, as defined in Section 6902.5, are not included in the five-million-dollar ($5,000,000) limitation set forth in subdivision (a) or (b).
(e) The amount of any credit otherwise allowable for the taxable year under Section 17039 that is not allowed due to application of this section shall remain a credit carryover amount under this part.
(f) The carryover period for any credit that is not allowed due to the application of this section shall be increased by the number of taxable years the credit or any portion thereof was not allowed.
(g) Notwithstanding anything to the contrary in this part or Part 10.2 (commencing with Section 18401), the credits listed in subdivision (c) shall be applied after any business credits, as limited by subdivision (a) or (b), are applied.
(h) Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code does not apply to any standard, criterion, procedure, determination, rule, notice, or guideline established or issued by the Franchise Tax Board pursuant to this section.
(i) For taxable years beginning on or after January 1, 2021, and before January 2, 1, 2023, the five-million-dollar ($5,000,000) limitation set forth in subdivision (a) or (b) shall not apply to taxpayers that perform clinical, biomedical, or other research, development, or testing needed for COVID-19 or other diseases. research and development in biotechnology. A taxpayer performs research and development in biotechnology if the taxpayer is described in Code 325414 or 541714 of the 2017 edition of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget.

SEC. 3.

 Section 17276.23 of the Revenue and Taxation Code is amended to read:

17276.23.
 (a) Notwithstanding Sections 17276, 17276.1, 17276.4, 17276.7, and 17276.22, former Sections 17276.2, 17276.5, 17276.6, and 17276.20, and Section 172 of the Internal Revenue Code, a net operating loss deduction shall not be allowed for any taxable year beginning on or after January 1, 2020, and before January 1, 2023.
(b) For any net operating loss or carryover of a net operating loss for which a deduction is denied by subdivision (a), the carryover period under Section 172 of the Internal Revenue Code shall be extended as follows:
(1) By one year, for losses incurred in taxable years beginning on or after January 1, 2021, and before January 1, 2022.
(2) By two years, for losses incurred in taxable years beginning on or after January 1, 2020, and before January 1, 2021.
(3) By three years, for losses incurred in taxable years beginning before January 1, 2020.
(c) This section shall not apply as follows:
(1) For a taxable year beginning on or after January 1, 2020, and before January 1, 2023, this section shall not apply to a taxpayer with a net business income of less than one million dollars ($1,000,000) for the taxable year.
(2) For a taxable year beginning on or after January 1, 2020, and before January 1, 2023, this section shall not apply to a taxpayer with a modified adjusted gross income of less than one million dollars ($1,000,000) for the taxable year.
(3) For a taxable years year beginning on or after January 1, 2021, and before January 1, 2023, this section shall not apply to a taxpayer that perform clinical, biomedical, and other research, development, and testing needed for COVID-19 or other diseases. performs research and development in biotechnology. A taxpayer performs research and development in biotechnology if the taxpayer is described in Code 325414 or 541714 of the 2017 edition of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget.
(d) For purposes of this section:
(1) “Business income” means any of the following:
(A) Income from a trade or business, whether conducted by the taxpayer or by a passthrough entity owned directly or indirectly by the taxpayer.
(B) Income from rental activity.
(C) Income attributable to a farming business.
(2) “Modified adjusted gross income” means the amount described in paragraph (2) of subdivision (h) of Section 17024.5, determined without regard to the deduction allowed under Section 172 of the Internal Revenue Code, relating to net operating loss deduction.
(3) “Passthrough entity” means a partnership or an S “S” corporation.

SEC. 4.

 Section 23036.3 of the Revenue and Taxation Code is amended to read:

23036.3.
 (a) Notwithstanding any provision of this part or Part 10.2 (commencing with Section 18401) to the contrary, except as provided in subdivision (d), for taxpayers not required to be included in a combined report under Section 25101 or 25110, or taxpayers not authorized to be included in a combined report under Section 25101.15, for each taxable year beginning on or after January 1, 2020, and before January 1, 2023, the total of all credits otherwise allowable under any provision of Chapter 3.5 (commencing with Section 23604) including the carryover of any credit under a former provision of that chapter, for the taxable year shall not reduce the “tax,” as defined in Section 23036, by more than five million dollars ($5,000,000).
(b) Notwithstanding any provision of this part or Part 10.2 (commencing with Section 18401) to the contrary, except as provided in subdivision (d), for taxpayers required to be included in a combined report under Section 25101 or 25110, or taxpayers authorized to be included in a combined report under Section 25101.15, for each taxable year beginning on or after January 1, 2020, and before January 1, 2023, the total of all credits otherwise allowable under any provision of Chapter 3.5 (commencing with Section 23604), including the carryover of any credit under a former provision of that chapter, by all members of the combined report shall not reduce the aggregate amount of “tax,” as defined in Section 23036, of all members of the combined report by more than five-million-dollars five million dollars ($5,000,000).
(c) Any amounts included in an election pursuant to Section 6902.5, relating to an irrevocable election to apply credit amounts under Section 17053.85, 17053.95, 17053.98, 23685, 23695, or 23698 against qualified sales and use tax, as defined in Section 6902.5, are not included in the five million dollar five-million-dollar ($5,000,000) limitation set forth in subdivision (a) or (b).
(d) The limitation under subdivision (a) or (b) shall not apply to the credit allowed by Section 23610.5 (relating to credit for low-income housing).
(e) The amount of any credit otherwise allowable for the taxable year under Section 23036 that is not allowed due to the application of this section shall remain a credit carryover amount under this part.
(f) The carryover period for any credit that is not allowed due to the application of this section shall be increased by the number of taxable years the credit or any portion thereof was not allowed.
(g) Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code does not apply to any standard, criterion, procedure, determination, rule, notice, or guideline established or issued by the Franchise Tax Board pursuant to this section.
(h) For taxable years on or after January 1, 2021, and before January 2, 2023, the five-million-dollar ($5,000,000) limitation set forth in subdivision (a) or (b) shall not apply to taxpayers that perform clinical, biomedical, or other research, development, or testing needed for COVID-19 or other diseases. research and development in biotechnology. A taxpayer performs research and development in biotechnology if the taxpayer is described in Code 325414 or 541714 of the 2017 edition of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget.

SEC. 5.

 (a) For purposes of Section 41 of the Revenue and Taxation Code, with respect to the tax expenditure created by the amendments to Sections 17039.3, 17276.23, and 23036.3 of the Revenue and Taxation Code made by this act, the Legislature finds and declares the following:
(1) The specific goals, purposes, and objectives of this bill are as follows:
(A) To encourage the activity of life sciences research in California.
(B) To incentivize more research into treatments, cures, and vaccines to address the global pandemic caused by COVID-19.
(2) To measure whether the credit achieves its intended purpose, the Franchise Tax Board shall prepare a written report on all of the following:
(A) The number of taxpayers claiming the credit.
(B) The average credit amount on tax returns claiming the credit.
(C) Where applicable the type of taxpayer claiming the credit.
(b) Notwithstanding Section 19542 of the Revenue and Taxation Code, the Franchise Tax Board shall provide the written report prepared pursuant to paragraph (2) of subdivision (a) 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. 6.

 This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.