BILL NUMBER: AB 437 INTRODUCED
BILL TEXT
INTRODUCED BY Assembly Member Atkins
(Principal coauthor: Assembly Member Mullin)
FEBRUARY 19, 2015
An act to amend Sections 17052.12 and 23609 of, to add Sections
17131.8 and 24304 to, and to add and repeal Division 3 (commencing
with Section 70000) of, the Revenue and Taxation Code, relating to
small businesses, and making an appropriation therefor.
LEGISLATIVE COUNSEL'S DIGEST
AB 437, as introduced, Atkins. Research and Development: Small
Business Grant Program.
Existing law provides for several programs supporting small
businesses, including the Office of Small Business Advocate, the
director of which duties include, among other things, representing
the views and interests of small businesses before other state
agencies whose policies and activities may affect small businesses.
The Personal Income Tax Law imposes taxes on taxable income at
specified rates based upon the amount of taxable income. The
Corporation Tax Law imposes taxes upon, according to, or measured by,
net income, as specified. The Personal Income Tax Law and the
Corporation Tax Law, in modified conformity to a credit allowed under
federal law, allow a credit against taxes imposed by those laws for
increasing research expenses, as defined. Existing law allows a
taxpayer to carryover any excess amounts of that credit to succeeding
taxable years, until the credit is exhausted.
This bill would, beginning January 1, 2016, establish the Research
and Development-Small Business Grant Program, which would provide
qualified small businesses, as defined, grants in amounts equal to
either 10% or 15% of any unused credit amount allowed to the small
business for specified years under the credit described above. This
bill would continuously appropriate moneys from the General Fund to
award these grants. This bill would specify that any grant money
received by a qualified small business would be excluded from its
income and would provide that any excess credit amount accrued by the
qualified small business would be reduced by the amount allowed as a
grant.
Vote: 2/3. Appropriation: yes. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
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 "tax," as defined by Section
17039) for the taxable year 17039, 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, 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,
the reference to "20 percent" in Section 41(a)(1) of the Internal
Revenue Code is modified to read "15 percent."
(c) Section 41(a)(2) of the Internal Revenue Code shall not apply.
(d) "Qualified research" shall include only research conducted in
California.
(e) (1) 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.
(2) For taxable years beginning on or after January 1, 2016, and
before January 1, 2025, the excess credit amount that may be carried
over shall be reduced for that taxable year by the amount received as
a grant pursuant to Division 3 (commencing with Section 70000).
(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 , 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) 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 amounts paid to certain research consortia
, 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 "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.
(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 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, relating to special rule for pass-thru of credit,
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 , relating to special rule for
pass-thru of credit, shall be taken into account in
each subsequent taxable year.
(j) Section 41(a)(3) of the Internal Revenue Code shall not apply.
(k) Section 41(b)(3)(D) of the Internal Revenue Code, relating to
amounts paid to eligible small businesses, universities, and
federal Federal laboratories, shall not apply.
( l ) Section 41(f)(6), of the Internal Revenue
Code relating to energy research consortium, shall not apply.
SEC. 2. Section 17131.8 is added to the Revenue and Taxation Code,
to read:
17131.8. For taxable years beginning on or after January 1, 2016,
and before January 1, 2025, gross income does not include any grant
received by a taxpayer pursuant to Division 3 (commencing with
Section 70000).
SEC. 3. 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 "tax," defined by Section 23036)
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 exempt 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) (1) 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.
(2) For taxable years beginning on or after January 1, 2016, and
before January 1, 2025, the excess credit amount that may be carried
over shall be reduced for that taxable year by the amount received as
a grant pursuant to Division 3 (commencing with Section 70000).
(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, 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, r
elating 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 the 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 passthrough 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, relating to special rule for pass-thru of credit,
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 Federal laboratories,
shall not apply.
(m) Section 41(f)(6) of the Internal Revenue Code, relating to
energy research consortium, shall not apply.
SEC. 4. Section 24304 is added to the Revenue and Taxation Code,
to read:
24304. For taxable years beginning on or after January 1, 2016,
and before January 1, 2025, any grant received by a taxpayer pursuant
to Division 3 (commencing with Section 70000).
SEC. 5. Division 3 (commencing with Section 70000) is added to the
Revenue and Taxation Code, to read:
DIVISION 3. Research and Development-Small Business Grant
Program
70000. For purposes of this division, a "qualified small business"
means a taxpayer that was allowed a credit under either Section
17052.12 or 23609 that has five million dollars ($5,000,000) or less
in gross receipts, as described in paragraph (3) of subdivision (g)
of Section 17052.12 or 23609, per taxable year. A "qualified small
business" does not include a taxpayer that has a parent company that
may apply any excess credit amount accrued by the qualified small
business under Section 17052.12 or 23609 to reduce its "net tax," as
defined in Section 17039, or "tax," as defined in Section 23609.
70001. (a) On or after January 1, 2016, and before January 1,
2025, a qualified small business may apply for and receive a grant as
follows:
(1) Beginning January 1, 2016, a qualified small business may
apply for and receive a one-time grant in an amount equal to 10
percent of any excess credit accrued over taxable years beginning on
or after January 1, 2014, and before January 1, 2016, for credits
allowed under Section 17052.12 or 23609.
(2) For taxable years beginning on or after January 1, 2016, and
before January 1, 2025, a qualified small business may apply for and
receive an annual grant in an amount equal to 15 percent of any
excess credit accrued for the taxable year in which the credit is
allowed under Section 17052.12 or 23609.
(b) (1) In order to receive a grant under paragraph (1) of
subdivision (a), the qualified small business shall apply to the
Franchise Tax Board for a certificate indicating the amount equal to
10 percent of any excess credit accrued over taxable years beginning
on or after January 1, 2014, and before January 1, 2016, for a credit
allowed under Section 17052.12 or 23609. The Franchise Tax Board
shall supply the qualified small business with a certificate within
30 days of receiving the application.
(2) In order to receive a grant under paragraph (2) of subdivision
(a), the qualified small business shall request, on an original,
timely filed return, a certificate indicating the amount equal to 15
percent of any excess credit accrued over for that taxable year in
which a credit is allowed under Section 17052.12 or 23609. The
Franchise Tax Board shall supply the qualified small business with a
certificate within 30 days of receiving the return.
70002. (a) The Controller, upon a receipt of a certificate issued
to a qualified small business under Section 70001, shall pay the
qualified small business the grant amount indicated upon the
certificate. Notwithstanding Section 13340 of the Government Code,
the amounts necessary to provide the grants are hereby continuously
appropriated from the General Fund.
(b) (1) Notwithstanding Section 10231.5 of the Government Code, on
or before January 1, 2017, and each January 1 thereafter, the
Controller shall provide a report to the Assembly Committee on
Revenue and Taxation including the recipients of the grants for the
previous calendar year and the grant amount each recipient received.
(2) A report submitted pursuant to paragraph (1) shall be
submitted in compliance with Section 9795 of the Government Code.
70003. This division shall remain in effect only until January 1,
2026, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2026, deletes or extends
that date.