Bill Text: CA AB1565 | 2009-2010 | Regular Session | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Research and development tax credit areas.

Spectrum: Slight Partisan Bill (Democrat 11-6)

Status: (Engrossed - Dead) 2010-06-23 - In committee: Placed on REV. & TAX. suspense file. [AB1565 Detail]

Download: California-2009-AB1565-Amended.html

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BILL NUMBER: AB 1565	AMENDED
	BILL TEXT

	AMENDED IN SENATE  JUNE 9, 2010
	AMENDED IN SENATE  MAY 28, 2009
	AMENDED IN ASSEMBLY  APRIL 13, 2009

INTRODUCED BY   Assembly Member  Ruskin  
Buchanan 
    (   Principal  
coauthors:   Assembly Members  
Coto     and Fletcher 
 ) 
    (   Principal coauthor: 
 Senator   Alquist   )

    (   Coauthors:  
Assembly Members   Buchanan,  
  Fong,    
Jeffries,     Lieu, 
   and Ma   ) 
    (   Coauthor:   Senator
  Correa   ) 

                        MARCH 12, 2009

    An act to amend Sections 17052.12 and 23609 
 An act to add and repeal Chapter 12.9 (commencing with Section
7092) of Division 7 of Title 1 of the Government Code, and to add and
repeal Sections 17052.66 and 23609.66  of the Revenue and
Taxation Code, relating to taxation, to take effect immediately, tax
levy.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 1565, as amended,  Ruskin   Buchanan 
.  Income and corporation taxes: credits: research.
  Research and development tax credit areas.  
   Existing law establishes the Department of Housing and Community
Development with duties that include overseeing various programs to
promote economic and community development throughout the state.
 
   This bill would authorize, until January 1, 2016, the department
to designate, based on specific factors, a Research and Development
Tax Credit Area located within an Innovation Hub or a city, as
respectively defined. 
   The Personal Income Tax Law and the Corporation Tax Law, by
reference to a specified federal statute, allow a credit against
taxes imposed by those laws for increasing research activities. The
amount of the credit under both laws is equal to 15% of the excess of
the qualified research expenses, as defined, for the taxable year
over the base amount, as defined, and, in addition, under the
Corporation Tax Law, 24% of the basic research payments, as defined.

   This bill would, under both laws for taxable years beginning on or
after January 1, 2011, incrementally increase the applicable
percentage of the credit for qualified research expenditures from 15%
to 20%. This bill would, under the Personal Income Tax Law, also
allow a credit for 24% of the basic research payments for taxable
years beginning on or after January 1, 2011.  
   This bill would, under both laws, for each taxable year beginning
on or after January 1, 2011, and before January 1, 2016, provide to a
qualified taxpayer, as defined, a tax credit for research and
development, as defined, for expenses equal to 20% of the research
and development expenses relating to the development of alternative
energy sources and advanced transportation technologies, as those
terms are defined, conducted in California in a research and
development tax area, as described. The bill would further require
the Legislative Analyst's Office to report to the Legislature on the
effectiveness of the tax credit program established by this act.

   This bill would take effect immediately as a tax levy.
   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

   SECTION 1.    Chapter 12.9 (commencing with Section
7092) is added to Division 7 of Title 1 of the   Government
Code   , to read:  
      CHAPTER 12.9.  RESEARCH AND DEVELOPMENT TAX CREDIT AREA


   7092.  Unless context requires otherwise, the following
definitions shall apply to this chapter:
   (a) "City" means a city incorporated on or after July 1, 2000.
   (b) "Department" means the Department of Housing and Community
Development.
   (c) "iHub" means an Innovation Hub designated by the Business,
Transportation and Housing Agency.
   (d) "Research and Development Tax Credit Area" or "area" means a
geographical region designated by the department pursuant to this
chapter.
   7092.5.  A Research and Development Tax Credit Area shall be
located entirely within the jurisdiction of a city or iHub and shall
be smaller in size than the city or iHub.
   7092.10.  (a) A city or iHub is authorized to make a proposal to
the department to have a Research and Development Tax Credit Area
located within its jurisdiction.
   (b) A proposal to have the department designate an area shall
include, but not be limited to, both of the following:
   (1) The geographical boundaries of the proposed area.
   (2) The targeted number of new, permanent jobs anticipated to be
created by the proposed area.
   7092.15.  (a) The department is authorized to designate a Research
and Development Tax Credit Area after evaluating a proposal by a
city or iHub.
   (b) The department shall evaluate a proposal to designate an area
based upon all of the following criteria:
   (1) The extent to which the anticipated benefit to the state from
projects or products produced within the proposed area equals or
exceeds the anticipated benefit to entities claiming the tax credits
pursuant to Sections 17052.66 and 23609.66 of the Revenue and
Taxation Code.
   (2) The extent to which the proposed area will create new,
permanent jobs in this state.
   (3) The extent to which projects or products produced within the
proposed area result in a reduction of greenhouse gases, a reduction
in air or water pollution, an increase in energy efficiency, or a
reduction in energy consumption, beyond what is required by any
federal or state law or regulation.
   (4) Any other factors the department deems appropriate in
accordance with this chapter.
   7092.20.  This chapter shall remain in effect only until January
1, 2016, and as of that date is repealed. 
   SEC. 2.    Section 17052.66 is added to the 
 Revenue and Taxation Code   , to read:  
   17052.66.  (a) For each taxable year beginning on or after January
1, 2011, and before January 1, 2016, there shall be allowed as a
credit against the "net tax" (as defined by Section 17039) for the
taxable year an amount determined in accordance with Section 41 of
the Internal Revenue Code, except as otherwise provided in this
section.
   (b) For purposes of this section:
   (1) "Qualified taxpayer" means a taxpayer that conducts research
and development in a research and development tax area relating to
either of the following fields:
   (A) Alternative energy sources, as defined in paragraph (2) of
subdivision (b) and subdivision (c) of Section 26003 of the Public
Resources Code; the application of cogeneration technology, as
defined in Section 25134 of the Public Resources Code; the
conservation of energy through the use of solar, biomass, wind,
geothermal, hydroelectricity under 30 megawatts, or any other source
of energy, the efficient use of which will reduce the use of fossil
and nuclear fuels. Alternative energy sources also include advanced
electric distributive generation technology, as defined in
subdivision (a) of Section 379.8 of the Public Utilities Code, or
energy storage technologies and their component materials.
   (B) Advanced transportation technologies, as defined in
subdivision (d) of Section 26003 of the Public Resources Code.
Advanced transportation technologies include emerging commercially
competitive transportation-related technologies identified by a
transportation authority as capable of creating long-term, high
value-added jobs for Californians while enhancing the state's
commitment to energy conservation, pollution reduction, and
transportation efficiency. Those technologies may include, but are
not limited to, intelligent vehicle highway systems, advanced
telecommunications for transportation, command, control, and
communications for public transit vehicles and systems, electric
vehicles and ultralow-emission vehicles, high-speed rail and magnetic
levitation passenger systems, and fuel cells.
   (2) "Research and development" means those activities that are
described in Section 174 of the Internal Revenue Code or in any
regulation thereunder.
   (3) "Research and development tax area" means a research and
development tax area in the state established pursuant to Chapter
12.9 (commencing with Section 7092) of Division 7 of Title 1 of the
Government Code, but excludes any area designated as an enterprise
zone pursuant to Chapter 12.8 (commencing with Section 7070) of
Division 7 of Title 1 of the Government Code.
   (c) In the case where the credit allowed under this section
exceeds the "net tax," the excess may be carried over to reduce the
"net tax" in the following year, and succeeding years if necessary,
until the credit has been exhausted, but only to the extent that the
qualified taxpayer continues to conduct research and development in
the research and development tax area during the time for which the
reduction in "net tax" is claimed.
   (d) For each taxable year beginning on or after January 1, 2011,
the reference to "Section 501(a)" in Section 41(b)(3)(C) of the
Internal Revenue Code, relating to contract research expenses, is
modified to read "this part or Part 11 (commencing with Section
23001)."
   (e) Section 41(h) of the Internal Revenue Code, relating to
termination, shall not apply.
   (f) Section 41(g) of the Internal Revenue Code, relating to
special rule for passthrough 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 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 (e); except
that the limitation of Section 41(g) of the Internal Revenue Code
shall be taken into account in each subsequent taxable year.
   (g) Section 41(a)(3) of the Internal Revenue Code shall not apply.

   (h) 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.
   (i) Section 41(f)(6), relating to energy research consortium,
shall not apply.
   (j) The credit allowed by this section shall be in addition to any
other credit allowed by this part for the expenses on which the
credit under this section is based.
   (k) This section shall remain in effect only until December 1,
2016, and as of that date is repealed. 
   SEC. 3.    Section 23609.66 is added to the 
 Revenue and Taxation Code   , to read:  
   23609.66.  (a) For each taxable year beginning on or after January
1, 2011, and before January 1, 2016, 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, except as otherwise provided in this section.
   (b) For purposes of this section:
   (1) "Qualified taxpayer" means a taxpayer that conducts research
and development in a research and development tax area relating to
either of the following fields:
   (A) Alternative energy sources, as defined in paragraph (2) of
subdivision (b) and subdivision (c) of Section 26003 of the Public
Resources Code; the application of cogeneration technology, as
defined in Section 25134 of the Public Resources Code; the
conservation of energy through the use of solar, biomass, wind,
geothermal, hydroelectricity under 30 megawatts, or any other source
of energy, the efficient use of which will reduce the use of fossil
and nuclear fuels. Alternative energy sources also include advanced
electric distributive generation technology, as defined in
subdivision (a) of Section 379.8 of the Public Utilities Code, or
energy storage technologies and their component materials.
   (B) Advanced transportation technologies, as defined in
subdivision (d) of Section 26003 of the Public Resources Code.
Advanced transportation technologies include emerging commercially
competitive transportation-related technologies identified by a
transportation authority as capable of creating long-term, high
value-added jobs for Californians while enhancing the state's
commitment to energy conservation, pollution reduction, and
transportation efficiency. Those technologies may include, but are
not limited to, intelligent vehicle highway systems, advanced
telecommunications for transportation, command, control, and
communications for public transit vehicles and systems, electric
vehicles and ultralow-emission vehicles, high-speed rail and magnetic
levitation passenger systems, and fuel cells.
   (2) "Research and development" means those activities that are
described in Section 174 of the Internal Revenue Code or in any
regulations thereunder.
   (3) "Research and development tax area" means a research and
development tax area in the state established pursuant to Chapter
12.9 (commencing with Section 7092) of Division 7 of Title 1 of the
Government Code, but excludes any area designated as an enterprise
zone pursuant to Chapter 12.8 (commencing with Section 7070) of
Division 7 of Title 1 of the Government Code.
   (c) 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, but only to the extent that the qualified
taxpayer continues to conduct research and development in the
research and development tax area during the time for which the
reduction in "tax" is claimed.
   (d) For each taxable year beginning on or after January 1, 2011,
the reference to "Section 501(a)" in Section 41(b)(3)(C) of the
Internal Revenue Code, relating to contract research expenses, is
modified to read "this part or Part 10 (commencing with Section
17001)."
   (e) Section 41(h) of the Internal Revenue Code, relating to
termination, shall not apply.
   (f) Section 41(g) of the Internal Revenue Code, relating to
special rule for passthrough 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 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
shall be taken into account in each subsequent taxable year.
   (g) Section 41(a)(3) of the Internal Revenue Code shall not apply.

   (h) 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.
   (i) Section 41(f)(6) of the Internal Revenue Code, relating to
energy research consortium, shall not apply.
   (j) The credit allowed by this section shall be in addition to any
other credit allowed by this part for the expenses on which the
credit under this section is based.
   (k) This section shall remain in effect only until December 1,
2016, and as of that date is repealed. 
   SEC. 4.    Between January 1, 2016, and December 31,
2016, the Legislative Analyst's Office shall report to the
Legislature on the effectiveness of the Research and Development Tax
Credit Area program established pursuant to Chapter 12.9 (commencing
with Section 7092) of Division 7 of Title 1 of the Government Code,
by evaluating factors, including, but not limited to, all of the
following:  
   (a) The number of jobs created by the program in this state. 

   (b) The number of businesses that have remained in this state or
relocated to this state as a result of the program.  
   (c) The amount of state and local revenue and economic activity
generated by the program.  
   (d) The amount of reduction in greenhouse gases, air pollution,
water pollution, or energy consumption as a result of the program.

   SEC. 5.    This act provides for a tax levy within
the meaning of Article IV of the Constitution and shall go into
immediate effect.  
  SECTION 1.    Section 17052.12 of the Revenue and
Taxation Code is amended to read:
   17052.12.  For each taxable year beginning on or after January 1,
1987, there shall be allowed as a credit against the "net tax" (as
defined by Section 17039) for the taxable year an amount determined
in accordance with Section 41 of the Internal Revenue Code, except as
follows:
   (a) For each taxable year beginning before January 1, 1997, the
reference to "20 percent" in Section 41(a)(1) of the Internal Revenue
Code is modified to read "8 percent."
   (b) (1) For each taxable year beginning on or after January 1,
1997, and before January 1, 1999, the reference to "20 percent" in
Section 41(a)(1) of the Internal Revenue Code is modified to read "11
percent."
   (2) For each taxable year beginning on or after January 1, 1999,
and before January 1, 2000, the reference to "20 percent" in Section
41(a)(1) of the Internal Revenue Code is modified to read "12
percent."
   (3) For each taxable year beginning on or after January 1, 2000,
and before January 1, 2011, the reference to "20 percent" in Section
41(a)(1) of the Internal Revenue Code is modified to read "15
percent."
   (4) For each taxable year beginning on or after January 1, 2011,
and before January 1, 2013, 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 "16.25 percent."
   (B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
   (5) For each taxable year beginning on or after January 1, 2013,
and before January 1, 2014, 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 "17.50 percent."
   (B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
   (6) For each taxable year beginning on or after January 1, 2014,
and before January 1, 2015, 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 "18.75 percent."
   (B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
   (7) For each taxable year beginning on or after January 1, 2015,
both of the following shall apply:
   (A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code shall apply.
   (B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
   (c) Section 41(a)(2) of the Internal Revenue Code, relating to
basic research payments, shall not apply.
   (d) "Qualified research" shall include only research conducted in
California.
   (e) In the case where the credit allowed under this section
exceeds the "net tax," the excess may be carried over to reduce the
"net tax" in the following year, and succeeding years if necessary,
until the credit has been exhausted.
   (f) (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 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) 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 contract research expenses, is
modified to read "this part or Part 11 (commencing with Section
23001)."
   (g) (1) For each taxable year beginning on or after January 1,
2000:
   (A) The reference to "2.65 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 "3.2 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 "3.75 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) shall not apply and in lieu thereof an
election under Section 41(c)(4)(A) of the Internal Revenue Code 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)(6) 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.
   (h) Section 41(h) of the Internal Revenue Code, relating to
termination, shall not apply.
   (i) Section 41(g) of the Internal Revenue Code, relating to
special rule for passthrough 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 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 (e); except
that the limitation of Section 41(g) of the Internal Revenue Code
shall be taken into account in each subsequent taxable year.
 
  SEC. 2.    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, 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,
and before January 1, 2011, both of the following shall apply:
   (4) For each taxable year beginning on or after January 1, 2011,
and before January 1, 2013, 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 "16.25 percent."
   (B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
   (5) For each taxable year beginning on or after January 1, 2013,
and before January 1, 2014, 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 "17.50 percent."
   (B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
   (6) For each taxable year beginning on or after January 1, 2014,
and before January 1, 2015, 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 "18.75 percent."
   (B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
   (7) For each taxable year beginning on or after January 1, 2015,
both of the following shall apply:
   (A) The reference to "20 percent" in Section 41(a)(1) of the
Internal Revenue Code shall apply.
   (B) The reference to "20 percent" in Section 41(a)(2) of the
Internal Revenue Code is modified to read "24 percent."
   (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 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, 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 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.
   (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, 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 contract research expenses, 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 "2.65 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 "3.2 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 "3.75 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) shall not apply and in lieu thereof an
election under Section 41(c)(4)(A) of the Internal Revenue Code 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)(6) 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.
   (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 passthrough 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 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
shall be taken into account in each subsequent taxable year.
 
  SEC. 3.    This act provides for a tax levy within
the meaning of Article IV of the Constitution and shall go into
immediate effect.