Senate BillChaptered/SignedRevenue and Taxation
SB 1435: Personal Income Tax Law and Corporation Tax Law: federal conformity.
What SB 1435 does, verified September 17, 2026
The bill aims to update references to the federal internal revenue code for the personal income tax law and the corporation tax law. This update ensures modified conformity with federal income tax laws. The bill provides a deduction from income for interest paid on indebtedness incurred in the ordinary course of a trade or business, without applying the existing federal limitation on deductibility for business interest. The changes will take effect immediately, affecting taxable years beginning on or after January 1, 2025.
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Last action: Chaptered by Secretary of State. Chapter 236, Statutes of 2026. (2026-09-14)Alert me
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| Sep. 14, 2026 | Chaptered by Secretary of State. Chapter 236, Statutes of 2026. |
| Sep. 14, 2026 | Approved by the Governor. |
| Sep. 04, 2026 | Enrolled and presented to the Governor at 2 p.m. |
| Aug. 27, 2026 | Assembly amendments concurred in. (Ayes 39. Noes 0.) Ordered to engrossing and enrolling. |
| Aug. 26, 2026 | Ordered to special consent calendar. |
Latest bill textChaptered version, September 14, 2026 · 28,680 words
Senate Bill No. 1435
CHAPTER 236
An act to amend Sections 17024.5, 17052, 17077, 17085, 17091, 17156.1, 17201.3, 17225, 17260, 17276, 17276.1, 17276.3, 17276.4, 17276.7, 17276.21, 17276.22, 17276.24, 17302, 17551, 17560.5, 17737, 18622.5, 18624, 18666, 19311, 23051.5, 23609, 24355.5, 24416, 24416.1, 24416.3, 24416.4, 24416.7, 24416.21, 24416.22, 24452, and 25110 of, to repeal Sections 17132, 17279, 17865, 18044, and 24956 of, and to repeal and add Section 17250 of, the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.
[ Approved by Governor September 14, 2026. Filed with Secretary of State September 14, 2026. ]
LEGISLATIVE COUNSEL'S DIGEST
SB 1435, Committee on Revenue and Taxation. Personal Income Tax Law and Corporation Tax Law: federal conformity.
Under the Personal Income Tax Law and the Corporation Tax Law, various provisions of the federal Internal Revenue Code, as enacted as of a specified date, are referenced in various sections of the Revenue and Taxation Code. Those laws provide that, for taxable years beginning on or after January 1, 2025, the specified date of those referenced Internal Revenue Code sections is January 1, 2025, unless otherwise specifically provided.
This bill would further update various references to the Internal Revenue Code for the purposes of the Personal Income Tax Law and the Corporation Tax Law, including by deleting outdated references to repealed provisions of federal income tax laws and updating references to the Internal Revenue Code to reduce confusion.
The Personal Income Tax Law and the Corporation Tax Law, in modified conformity with federal income tax laws, provide a deduction from income for interest paid on indebtedness incurred in the ordinary course of a trade or business. Existing federal income tax law establishes a limit on the amount of interest that can be deducted based in part on the taxpayer’s adjusted taxable income, as defined. Existing law specifically does not conform to this limitation on deduction of business interest for purposes of the Corporation Tax Law.
This bill would, for taxable years beginning on or after January 1, 2025, provide that the limit on deductibility for business interest under federal income tax law does not apply for purposes of the Personal Income Tax Law.
This bill would take effect immediately as a tax levy.
The people of the State of California do enact as follows:
SECTION 1.
Section 17024.5 of the Revenue and Taxation Code is amended to read:17024.5.
(a) (1) Unless otherwise specifically provided, the terms “Internal Revenue Code,” “Internal Revenue Code of 1954,” or “Internal Revenue Code of 1986,” for purposes of this part, mean Title 26 of the United States Code, including all amendments thereto as enacted on the specified date for the applicable taxable year as follows:Taxable Year | Specified Date of Internal Revenue Code Sections |
(A) For taxable years beginning on or after | |
January 1, 1983, and on or before December | |
31, 1983 ........................ | January 15, 1983 |
(B) For taxable years beginning on or after | |
January 1, 1984, and on or before December | |
31, 1984 ........................ | January 1, 1984 |
(C) For taxable years beginning on or after | |
January 1, 1985, and on or before December | |
31, 1985 ........................ | January 1, 1985 |
(D) For taxable years beginning on or after | |
January 1, 1986, and on or before December | |
31, 1986 ........................ | January 1, 1986 |
(E) For taxable years beginning on or after | |
January 1, 1987, and on or before December | |
31, 1988 ........................ | January 1, 1987 |
(F) For taxable years beginning on or after | |
January 1, 1989, and on or before December | |
31, 1989 ........................ | January 1, 1989 |
(G) For taxable years beginning on or after | |
January 1, 1990, and on or before December | |
31, 1990 ........................ | January 1, 1990 |
(H) For taxable years beginning on or after | |
January 1, 1991, and on or before December | |
31, 1991 ........................ | January 1, 1991 |
(I) For taxable years beginning on or after | |
January 1, 1992, and on or before December | |
31, 1992 ........................ | January 1, 1992 |
(J) For taxable years beginning on or after | |
January 1, 1993, and on or before December | |
31, 1996 ........................ | January 1, 1993 |
(K) For taxable years beginning on or after | |
January 1, 1997, and on or before December | |
31, 1997 ........................ | January 1, 1997 |
(L) For taxable years beginning on or after | |
January 1, 1998, and on or before December | |
31, 2001 ........................ | January 1, 1998 |
(M) For taxable years beginning on or after | |
January 1, 2002, and on or before December | |
31, 2004 ........................ | January 1, 2001 |
(N) For taxable years beginning on or after | |
January 1, 2005, and on or before December | |
31, 2009 ........................ | January 1, 2005 |
(O) For taxable years beginning on or after | |
January 1, 2010, and on or before December | |
31, 2014 ........................ | January 1, 2009 |
(P) For taxable years beginning on or after | |
January 1, 2015, and on or before December 31, 2024 ........................ | January 1, 2015 |
(Q) For taxable years beginning on or after January 1, 2025 ........................ | January 1, 2025 |
(2) (A) Unless otherwise specifically provided, for federal laws enacted on or after January 1, 1987, and on or before the specified date for the taxable year, uncodified provisions that relate to provisions of the Internal Revenue Code that are incorporated for purposes of this part shall be applicable to the same taxable years as the incorporated provisions.
(B) In the case where Section 901 of the Economic Growth and Tax Relief Act of 2001 (Public Law 107-16) applies to any provision of the Internal Revenue Code that is incorporated for purposes of this part, Section 901 of the Economic Growth and Tax Relief Act of 2001 shall apply for purposes of this part in the same manner and to the same taxable years as it applies for federal income tax purposes.
(3) Subtitle G (Tax Technical Corrections) and Part I of Subtitle H (Repeal of Expired or Obsolete Provisions) of the Revenue Reconciliation Act of 1990 (Public Law 101-508) modified numerous provisions of the Internal Revenue Code and provisions of prior federal acts, some of which are incorporated by reference into this part. Unless otherwise provided, the provisions described in the preceding sentence, to the extent that they modify provisions that are incorporated into this part, are declaratory of existing law and shall be applied in the same manner and for the same periods as specified in the Revenue Reconciliation Act of 1990.
(b) Unless otherwise specifically provided, when applying any provision of the Internal Revenue Code for purposes of this part, a reference to any of the following is not applicable for purposes of this part:
(1) Except as provided in Chapter 4.5 (commencing with Section 23800) of Part 11 of Division 2, an electing small business corporation, as defined in Section 1361(b) of the Internal Revenue Code.
(2) Domestic international sales corporations (DISC), as defined in Section 992(a) of the Internal Revenue Code.
(3) A personal holding company, as defined in Section 542 of the Internal Revenue Code.
(4) A foreign personal holding company, as defined in Section 552 of the Internal Revenue Code.
(5) A foreign trust, as defined in Section 679 of the Internal Revenue Code.
(6) Foreign income taxes and foreign income tax credits.
(7) Section 911 of the Internal Revenue Code, relating to citizens or residents of the United States living abroad.
(8) A foreign corporation, except that Section 367 of the Internal Revenue Code shall be applicable.
(9) Federal tax credits and carryovers of federal tax credits.
(10) Nonresident aliens.
(11) Deduction for personal exemptions, as provided in Section 151 of the Internal Revenue Code.
(12) The tax on generation-skipping transfers imposed by Section 2601 of the Internal Revenue Code.
(13) The tax, relating to estates, imposed by Section 2001 or 2101 of the Internal Revenue Code.
(c) (1) The provisions contained in Sections 41 to 44, inclusive, and Section 172 of the Tax Reform Act of 1984 (Public Law 98-369), relating to treatment of debt instruments, is not applicable for taxable years beginning before January 1, 1987.
(2) The provisions contained in Public Law 99-121, relating to the treatment of debt instruments, is not applicable for taxable years beginning before January 1, 1987.
(3) For each taxable year beginning on or after January 1, 1987, the provisions referred to by paragraphs (1) and (2) shall be applicable for purposes of this part in the same manner and with respect to the same obligations as the federal provisions, except as otherwise provided in this part.
(d) When applying the Internal Revenue Code for purposes of this part, regulations promulgated in final form or issued as temporary regulations by “the secretary” shall be applicable as regulations under this part to the extent that they do not conflict with this part or with regulations issued by the Franchise Tax Board.
(e) Whenever this part allows a taxpayer to make an election, the following rules shall apply:
(1) A proper election filed with the Internal Revenue Service in accordance with the Internal Revenue Code or regulations issued by “the secretary” shall be deemed to be a proper election for purposes of this part, unless otherwise provided in this part or in regulations issued by the Franchise Tax Board.
(2) A copy of that election shall be furnished to the Franchise Tax Board upon request.
(3) (A) Except as provided in subparagraph (B), in order to obtain treatment other than that elected for federal purposes, a separate election shall be filed at the time and in the manner required by the Franchise Tax Board.
(B) (i) If a taxpayer makes a proper election for federal income tax purposes prior to the time that taxpayer becomes subject to the tax imposed under this part or Part 11 (commencing with Section 23001), that taxpayer is deemed to have made the same election for purposes of the tax imposed by this part, Part 10.2 (commencing with Section 18401), and Part 11 (commencing with Section 23001), as applicable, and that taxpayer may not make a separate election for California tax purposes unless that separate election is expressly authorized by this part, Part 10.2 (commencing with Section 18401), or Part 11 (commencing with Section 23001), or by regulations issued by the Franchise Tax Board.
(ii) If a taxpayer has not made a proper election for federal income tax purposes prior to the time that taxpayer becomes subject to tax under this part or Part 11 (commencing with Section 23001), that taxpayer may not make a separate California election for purposes of this part, Part 10.2 (commencing with Section 18401), or Part 11 (commencing with Section 23001), unless that separate election is expressly authorized by this part, Part 10.2 (commencing with Section 18401), or Part 11 (commencing with Section 23001), or by regulations issued by the Franchise Tax Board.
(iii) This subparagraph applies only to the extent that the provisions of the Internal Revenue Code or the regulation issued by “the secretary” authorizing an election for federal income tax purposes apply for purposes of this part, Part 10.2 (commencing with Section 18401) or Part 11 (commencing with Section 23001).
(f) Whenever this part allows or requires a taxpayer to file an application or seek consent, the rules set forth in subdivision (e) shall be applicable with respect to that application or consent.
(g) When applying the Internal Revenue Code for purposes of determining the statute of limitations under this part, any reference to a period of three years shall be modified to read four years for purposes of this part.
(h) When applying, for purposes of this part, any section of the Internal Revenue Code or any applicable regulation thereunder, all of the following shall apply:
(1) References to “adjusted gross income” shall mean the amount computed in accordance with Section 17072, except as provided in paragraph (2).
(2) (A) Except as provided in subparagraph (B), references to “adjusted gross income” for purposes of computing limitations based upon adjusted gross income, shall mean the amount required to be shown as adjusted gross income on the federal tax return for the same taxable year.
(B) In the case of registered domestic partners and former registered domestic partners, adjusted gross income, for the purposes of computing limitations based upon adjusted gross income, shall mean the adjusted gross income on a federal tax return computed as if the registered domestic partner or former registered domestic partner was treated as a spouse or former spouse, respectively, for federal income tax purposes, and used the same filing status that was used on the state tax return for the same taxable year.
(3) Any reference to “subtitle” or “chapter” shall mean this part.
(4) The provisions of Section 7806 of the Internal Revenue Code, relating to construction of title, shall apply.
(5) Any provision of the Internal Revenue Code that becomes operative on or after the specified date for that taxable year shall become operative on the same date for purposes of this part.
(6) Any provision of the Internal Revenue Code that becomes inoperative on or after the specified date for that taxable year shall become inoperative on the same date for purposes of this part.
(7) Due account shall be made for differences in federal and state terminology, effective dates, substitution of “Franchise Tax Board” for “secretary” when appropriate, and other obvious differences.
(8) Except as otherwise provided, any reference to Section 501 of the Internal Revenue Code shall be interpreted to also refer to Section 23701.
(i) Any reference to a specific provision of the Internal Revenue Code shall include modifications of that provision, if any, in this part.
SEC. 2.
Section 17052 of the Revenue and Taxation Code is amended to read:17052.
(a) (1) For each taxable year beginning on or after January 1, 2015, there shall be allowed against the “net tax,” as defined by Section 17039, an earned income tax credit in an amount equal to an amount determined in accordance with Section 32 of the Internal Revenue Code, relating to earned income, as applicable for federal income tax purposes for the taxable year, except as otherwise provided in this section.(2) (A) The amount of the credit determined under Section 32 of the Internal Revenue Code, relating to earned income, as modified by this section, shall be multiplied by the earned income tax credit adjustment factor for the taxable year.
(B) Unless otherwise specified in the annual Budget Act, the earned income tax credit adjustment factor for a taxable year beginning on or after January 1, 2015, shall be 0 percent.
(C) The earned income tax credit authorized by this section shall only be operative for taxable years for which resources are authorized in the annual Budget Act for the Franchise Tax Board to oversee and audit returns associated with the credit.
(b) (1) In lieu of the table prescribed in Section 32(b)(1) of the Internal Revenue Code, relating to percentages, the credit percentage and the phaseout percentage shall be determined as follows:
In the case of an eligible individual with: | The credit percentage is: | The phaseout percentage is: |
No qualifying children | 7.65% | 7.65% |
1 qualifying child | 34% | 34% |
2 qualifying children | 40% | 40% |
3 or more qualifying children | 45% | 45% |
(2) (A) In lieu of the table prescribed in Section 32(b)(2)(A) of the Internal Revenue Code, the earned income amount and the phaseout amount shall be determined as follows:
In the case of an eligible individual with: | The earned income amount is: | The phaseout amount is: |
No qualifying children | $3,290 | $3,290 |
1 qualifying child | $4,940 | $4,940 |
2 or more qualifying children | $6,935 | $6,935 |
(B) Section 32(b)(2)(B) of the Internal Revenue Code, relating to joint returns, shall not apply.
(c) (1) Section 32(c)(1)(A)(ii)(I) of the Internal Revenue Code is modified by substituting “this state” for “the United States.”
(2) For each taxable year beginning on or after January 1, 2018, Section 32(c)(1)(A)(ii)(II) of the Internal Revenue Code is modified by deleting “25 but not attained age 65” and inserting in lieu thereof the following: “18.”
(3) Section 32(c)(2)(A) of the Internal Revenue Code is modified as follows:
(A) Section 32(c)(2)(A)(i) of the Internal Revenue Code is modified by deleting “plus” and inserting in lieu thereof the following: “and only if such amounts are subject to withholding pursuant to Division 6 (commencing with Section 13000) of the Unemployment Insurance Code.”
(B) Section 32(c)(2)(A)(ii) of the Internal Revenue Code shall not apply.
(4) For taxable years beginning on or after January 1, 2017, paragraph (3) shall not apply and in lieu thereof Section 32(c)(2)(A) of the Internal Revenue Code is modified as follows:
(A) Section 32(c)(2)(A)(i) of the Internal Revenue Code is modified by deleting “plus” and inserting in lieu thereof the following: “and only if such amounts are subject to withholding pursuant to Division 6 (commencing with Section 13000) of the Unemployment Insurance Code, plus.”
(B) Section 32(c)(2)(A)(ii) of the Internal Revenue Code shall apply.
(5) Section 32(c)(3)(C) of the Internal Revenue Code, relating to place of abode, is modified by substituting “this state” for “the United States.”
(d) Section 32(i)(1) of the Internal Revenue Code is modified by substituting “$3,400” for the amount prescribed in that provision.
(e) (1) In lieu of Section 32(j) of the Internal Revenue Code, relating to inflation adjustments, for taxable years beginning on or after January 1, 2016, the amounts specified in paragraph (2) of subdivision (b) and in subdivision (d) shall be recomputed annually in the same manner as the recomputation of income tax brackets under subdivision (h) of Section 17041.
(2) For each taxable year beginning on or after January 1, 2018, and before January 1, 2019, when recomputing the amounts referenced in paragraph (1), the percentage change in the California Consumer Price Index shall be deemed to be the greater of 3.1 percent or the percentage change in the California Consumer Price Index as calculated under subdivision (h) of Section 17041 for that taxable year.
(3) For each taxable year beginning on or after January 1, 2019, and before January 1, 2020, when recomputing the amounts referenced in paragraph (1), the percentage change in the California Consumer Price Index shall be deemed to be the greater of 3.5 percent or the percentage change in the California Consumer Price Index as calculated under subdivision (h) of Section 17041 for that taxable year.
(f) If the amount allowable as a credit under this section exceeds the tax liability computed under this part for the taxable year, the excess shall be credited against other amounts due, if any, and the balance, if any, shall be paid from the Tax Relief and Refund Account and refunded to the taxpayer.
(g) (1) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section.
(2) (A) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this section, including any regulations to prevent improper claims from being filed or improper payments from being made with respect to net earnings from self-employment.
(B) The adoption of any regulations pursuant to subparagraph (A) may be adopted as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) and shall be deemed an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, these emergency regulations shall not be subject to the review and approval of the Office of Administrative Law. The regulations shall become effective immediately upon filing with the Secretary of State, and shall remain in effect until revised or repealed by the Franchise Tax Board.
(h) Notwithstanding any other law, amounts refunded pursuant to this section shall be treated in the same manner as the federal earned income refund for the purpose of determining eligibility to receive benefits under Division 9 (commencing with Section 10000) of the Welfare and Institutions Code or amounts of those benefits.
(i) (1) For the purpose of implementing the credit allowed by this section for the 2015 taxable year, the Franchise Tax Board shall be exempt from the following:
(A) Special Project Report requirements under State Administrative Manual Sections 4819.36, 4945, and 4945.2.
(B) Special Project Report requirements under Statewide Information Management Manual Section 30.
(C) Section 11.00 of the 2015 Budget Act.
(D) Sections 12101, 12101.5, 12102, and 12102.1 of the Public Contract Code.
(2) The Franchise Tax Board shall formally incorporate the scope, costs, and schedule changes associated with the implementation of the credit allowed by this section in its next anticipated Special Project Report for its Enterprise Data to Revenue Project.
(j) (1) In accordance with Section 41, the purpose of the California Earned Income Tax Credit is to reduce poverty among California’s poorest working families and individuals. To measure whether the credit achieves its intended purpose, the Franchise Tax Board shall annually prepare a written report on the following:
(A) The number of tax returns claiming the credit.
(B) The number of individuals represented on tax returns claiming the credit.
(C) The average credit amount on tax returns claiming the credit.
(D) The distribution of credits by number of dependents and income ranges. The income ranges shall encompass the phase-in and phaseout ranges of the credit.
(E) Using data from tax returns claiming the credit, including an estimate of the federal tax credit determined under Section 32 of the Internal Revenue Code, an estimate of the number of families who are lifted out of deep poverty by the credit and an estimate of the number of families who are lifted out of deep poverty by the combination of the credit and the federal tax credit. For the purposes of this subdivision, a family is in “deep poverty” if the income of the family is less than 50 percent of the federal poverty threshold.
(2) The Franchise Tax Board shall provide the written report 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 Revenue and Taxation, the Assembly Committee on Revenue and Taxation, and the Senate and Assembly Committees on Human Services.
(k) The tax credit allowed by this section shall be known as the California Earned Income Tax Credit.
(l) The amendments made to this section by Chapter 722 of the Statutes of 2016 shall apply to taxable years beginning on or after January 1, 2016.
(m) (1) For each taxable year beginning on or after January 1, 2017, and before January 1, 2018, if the amount of credit computed pursuant to subdivisions (a) and (b) is less than or equal to one hundred dollars ($100) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with no qualifying children, or less than or equal to two hundred fifty dollars ($250) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with one or more qualifying children, and the earned income amount is greater than or equal to the corresponding amount in the table set forth in paragraph (2) below, then in lieu of the table prescribed in paragraph (1) of subdivision (b), the credit percentage and the phaseout percentage shall be determined as follows:
In the case of an eligible individual with: | The credit percentage is: | The phaseout percentage is: |
No qualifying children | 2.20% | 1.22% |
1 qualifying child | 3.10% | 2.29% |
2 qualifying children | 2.13% | 3.45% |
3 or more qualifying children | 2.12% | 3.49% |
(2) For each taxable year beginning on or after January 1, 2017, and before January 1, 2018, if the amount of credit computed pursuant to subdivisions (a) and (b) is less than or equal to one hundred dollars ($100) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with no qualifying children, or less than or equal to two hundred fifty dollars ($250) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with one or more qualifying children, then in lieu of the table prescribed in subparagraph (A) of paragraph (2) of subdivision (b), the earned income amount and the phaseout amount shall be determined as follows:
In the case of an eligible individual with: | The earned income amount is: | The phaseout amount is: |
No qualifying children | $5,354 | $5,354 |
1 qualifying child | $9,484 | $9,484 |
2 qualifying children | $13,794 | $13,794 |
3 or more qualifying children | $13,875 | $13,875 |
(n) (1) For each taxable year beginning on or after January 1, 2018, and before January 1, 2019, if the amount of credit computed pursuant to subdivisions (a) and (b) is less than or equal to one hundred three dollars ($103) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with no qualifying children, or less than or equal to two hundred fifty-eight dollars ($258) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with one or more qualifying children, and the earned income amount is greater than or equal to the corresponding amount in the table set forth in paragraph (2) below, then in lieu of the table prescribed in paragraph (1) of subdivision (b), the credit percentage and the phaseout percentage shall be determined as follows:
In the case of an eligible individual with: | The credit percentage is: | The phaseout percentage is: |
No qualifying children | 2.20% | 1.08% |
1 qualifying child | 3.10% | 2.00% |
2 qualifying children | 2.13% | 2.82% |
3 or more qualifying children | 2.12% | 2.85% |
(2) For each taxable year beginning on or after January 1, 2018, and before January 1, 2019, if the amount of credit computed pursuant to subdivisions (a) and (b) is less than or equal to one hundred three dollars ($103) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with no qualifying children, or less than or equal to two hundred fifty-eight dollars ($258) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with one or more qualifying children, then in lieu of the table prescribed in subparagraph (A) of paragraph (2) of subdivision (b), the earned income amount and the phaseout amount shall be determined as follows:
In the case of an eligible individual with: | The earned income amount is: | The phaseout amount is: |
No qualifying children | $5,520 | $5,520 |
1 qualifying child | $9,778 | $9,778 |
2 qualifying children | $14,222 | $14,222 |
3 or more qualifying children | $14,305 | $14,305 |
(o) (1) For each taxable year beginning on or after January 1, 2019, if the amount of credit computed pursuant to subdivisions (a) and (b) is less than or equal to two hundred dollars ($200) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with no qualifying children, or less than or equal to five hundred five dollars ($505) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with one or more qualifying children, and the earned income amount is greater than or equal to the corresponding amount in the table set forth in paragraph (2) below, then in lieu of the table prescribed in paragraph (1) of subdivision (b), the credit percentage and the phaseout percentage shall be determined as follows:
In the case of an eligible individual with: | The credit percentage is: | The phaseout percentage is: |
| No qualifying children | 5.43% | 0.92% |
1 qualifying child | 6.33% | 2.88% |
2 qualifying children | 4.20% | 3.75% |
3 or more qualifying children | 4.15% | 3.78% |
(2) For each taxable year beginning on or after January 1, 2019, if the amount of credit computed pursuant to subdivisions (a) and (b) is less than or equal to two hundred dollars ($200) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with no qualifying children, or less than or equal to five hundred five dollars ($505) multiplied by the ratio of the earned income tax credit adjustment factor for that taxable year divided by 0.85 for an eligible individual with one or more qualifying children, then in lieu of the table prescribed in subparagraph (A) of paragraph (2) of subdivision (b), the earned income amount and the phaseout amount shall be determined as follows:
In the case of an eligible individual with: | The earned income amount is: | The phaseout amount is: |
| No qualifying children | $4,334 | $4,334 |
1 qualifying child | $9,381 | $9,381 |
2 qualifying children | $14,137 | $14,137 |
3 or more qualifying children | $14,302 | $14,302 |
(3) For taxable years beginning on or after January 1, 2020, and until and including the taxable year in which the minimum wage, as defined in paragraph (1) of subdivision (b) of Section 1182.12 of the Labor Code, is set at fifteen dollars ($15) per hour, both of the following shall occur:
(A) The amounts in paragraphs (1) and (2) shall be recomputed annually in the same manner as the recomputation of income tax brackets under subdivision (h) of Section 17041.
(B) The phaseout percentage for each of the four categories of eligible individuals shall be recalculated by the Franchise Tax Board in such a manner that, for a taxpayer with an earned income of thirty thousand dollars ($30,000), the calculated amount of credit is equal to zero.
(4) (A) For taxable years beginning after the taxable year in which the minimum wage, as defined in paragraph (1) of subdivision (b) of Section 1182.12 of the Labor Code, is set at fifteen dollars ($15) per hour, the amounts in paragraphs (1) and (2) shall be recomputed annually in the same manner as the recomputation of income tax brackets under subdivision (h) of Section 17041.
(B) For taxable years beginning after the taxable year in which the minimum wage, as defined in paragraph (1) of subdivision (b) of Section 1182.12 of the Labor Code, is set at fifteen dollars ($15) per hour, the phaseout percentages for the prior taxable year, as recalculated under subparagraph (B) of paragraph (3), shall apply.
(p) For each taxable year beginning on or after January 1, 2020, Section 32(m) of the Internal Revenue Code, relating to identification numbers, is modified as follows:
(1) By deleting “(other than a social security number issued pursuant to clause (II) (or that portion of clause (III) that relates to clause (II)) of section 205(c)(2)(B)(i) of the Social Security Act).”
(2) By substituting “federal individual taxpayer identification number or a social security number” for “social security number.”
(q) An eligible individual, eligible individual’s spouse, or qualifying child using a federal individual taxpayer identification number as authorized under subdivision (p) shall:
(1) Upon request of the Franchise Tax Board, provide:
(A) Identifying documents acceptable for purposes of obtaining a California driver’s license or identification card as authorized by subdivisions (a), (b), and (c) of Section 12801.9 of the Vehicle Code and related regulations adopted for purposes of establishing documents acceptable to prove identity.
(B) Identifying documents used to report earned income for the taxable year.
(2) Upon receiving a valid social security number issued to that individual by the Social Security Administration, notify the Franchise Tax Board, in the time and manner prescribed by the Franchise Tax Board.
(r) The Legislature finds and declares that, to the extent they are otherwise qualified for a credit under this section, undocumented persons are eligible for the tax credit authorized by this section within the meaning of subsection (d) of Section 1621 of Title 8 of the United States Code.
SEC. 3.
Section 17077 of the Revenue and Taxation Code is amended to read:17077.
Section 68 of the Internal Revenue Code, relating to overall limitation on itemized deductions, shall apply, except as otherwise provided.(a) “Six percent” shall be substituted for “3 percent” in Section 68(a)(1) of the Internal Revenue Code.
(b) Section 68(b)(1) of the Internal Revenue Code shall not apply and in lieu thereof the term “applicable amount” in each place it appears in Section 68(a) of the Internal Revenue Code means one hundred thousand dollars ($100,000) in the case of a single individual, or a spouse filing a separate return, one hundred fifty thousand dollars ($150,000) in the case of a head of household, and two hundred thousand dollars ($200,000) in the case of a surviving spouse, or spouses filing a joint return.
(c) Section 68(b)(2) of the Internal Revenue Code, relating to inflation adjustments, shall not apply. However, for any taxable year beginning on or after January 1, 1992, the applicable amounts specified in subdivision (b) shall be recomputed annually in the same manner as the recomputation of income tax brackets under subdivision (h) of Section 17041.
(d) Section 68(f) of the Internal Revenue Code, relating to section not to apply, shall not apply.
SEC. 4.
Section 17085 of the Revenue and Taxation Code is amended to read:17085.
Section 72 of the Internal Revenue Code, relating to annuities, certain proceeds of endowment and life insurance contracts, is modified as follows:(a) The amendments and transitional rules made by Public Law 99-514 shall be applicable to this part for the same transactions and the same years as they are applicable for federal purposes, except that the repeal of Section 72(d) of the Internal Revenue Code, relating to repeal of special rule for employees’ annuities, shall apply only to the following:
(1) Any individual whose annuity starting date is after December 31, 1986.
(2) At the election of the taxpayer, any individual whose annuity starting date is after July 1, 1986, and before January 1, 1987.
(b) The amount of a distribution from an individual retirement account or annuity or employee trust or employee annuity that is includable in gross income for federal purposes shall be reduced for purposes of this part by the lesser of either of the following:
(1) An amount equal to the amount includable in federal gross income for the taxable year.
(2) An amount equal to the basis in the account or annuity allowed by Section 17507 (relating to individual retirement accounts and simplified employee pensions), the increased basis allowed by Sections 17504 and 17506 (relating to plans of self-employed individuals), the increased basis allowed by Section 17501, or the increased basis allowed by Section 17551 that is remaining after adjustment for reductions in gross income under this provision in prior taxable years.
(c) (1) Except as provided in paragraph (2), the amount of the additional tax imposed under this part shall be computed in accordance with Sections 72(m), (q), (t), and (v) of the Internal Revenue Code, as applicable for federal income tax purposes for the same taxable year, using a rate of 21/2 percent, in lieu of the rate provided in those sections.
(2) In the case where Section 72(t)(6) of the Internal Revenue Code, relating to special rules for simple retirement accounts, as applicable for federal income tax purposes for the same taxable year, applies, the rate in paragraph (1) shall be 6 percent in lieu of the 21/2 percent rate specified therein.
(d) Section 72(f)(2) of the Internal Revenue Code shall be applicable without applying the exceptions which immediately follow that paragraph.
(e) The amendments made by Section 844 of the federal Pension Protection Act of 2006 (Public Law 109-280) to Section 72(e) of the Internal Revenue Code, shall not apply.
SEC. 5.
Section 17091 of the Revenue and Taxation Code is amended to read:17091.
(a) Section 71 of the Internal Revenue Code, relating to alimony and separate maintenance payments, as it read on January 1, 2015, shall apply, except as otherwise provided.(b) Subdivision (a) shall not apply for any divorce or separation instrument executed after December 31, 2025, or for any divorce or separation instrument executed on or before December 31, 2025, and modified after that date, if the modification expressly provides that the amendments made by this subdivision apply to such modification.
SEC. 6.
Section 17132 of the Revenue and Taxation Code, as added by Section 8 of Chapter 34 of the Statutes of 2002, is repealed.SEC. 7.
Section 17132 of the Revenue and Taxation Code, as added by Section 8 of Chapter 35 of the Statutes of 2002, is repealed.SEC. 8.
Section 17156.1 of the Revenue and Taxation Code is amended to read:17156.1.
Section 139F of the Internal Revenue Code, relating to certain amounts received by wrongfully incarcerated individuals, shall apply.SEC. 9.
Section 17201.3 of the Revenue and Taxation Code is amended to read:17201.3.
(a) Section 215 of the Internal Revenue Code, relating to alimony, etc., payments, as it read on January 1, 2015, shall apply, except as otherwise provided.(b) Subdivision (a) shall not apply for any divorce or separation instrument executed after December 31, 2025, or for any divorce or separation instrument executed on or before December 31, 2025, and modified after that date, if the modification expressly provides that the amendments made by this subdivision apply to such modification.
SEC. 10.
Section 17225 of the Revenue and Taxation Code is amended to read:17225.
(a) Section 163(h)(3)(E) of the Internal Revenue Code, relating to mortgage insurance premiums treated as interest, shall not apply.(b) Section 163(h)(3)(F) of the Internal Revenue Code, relating to special rules for taxable years 2018 to 2025, shall not apply.
(c) Section 163(j) of the Internal Revenue Code, relating to limitation on business interest, shall not apply.
SEC. 11.
Section 17250 of the Revenue and Taxation Code is repealed.SEC. 12.
Section 17250 is added to the Revenue and Taxation Code, to read:17250.
(a) Section 168 of the Internal Revenue Code, relating to accelerated cost recovery system, is modified as follows:(1) Any reference to “tax imposed by this chapter” in Section 168 of the Internal Revenue Code, relating to accelerated cost recovery system, means “net tax,” as defined in Section 17039.
(2) Section 168(b)(3)(G) of the Internal Revenue Code shall not apply.
(3) (A) Section 168(e)(3) of the Internal Revenue Code, relating to classification of certain property, is modified to provide that any grapevine, replaced in a vineyard in California in any taxable year beginning on or after January 1, 1992, as a direct result of a phylloxera infestation in that vineyard, or replaced in a vineyard in California in any taxable year beginning on or after January 1, 1997, as a direct result of Pierce’s disease in that vineyard, shall be “five-year property,” rather than “10-year property.”
(B) Section 168(g)(3) of the Internal Revenue Code, relating to special rules for determining class life, is modified to provide that any grapevine, replaced in a vineyard in California in any taxable year beginning on or after January 1, 1992, as a direct result of a phylloxera infestation in that vineyard, or replaced in a vineyard in California in any taxable year beginning on or after January 1, 1997, as a direct result of Pierce’s disease in that vineyard, shall have a class life of 10 years.
(C) Every taxpayer claiming a depreciation deduction with respect to grapevines as described in this paragraph shall obtain a written certification from an independent state-certified integrated pest management adviser, or a state agricultural commissioner or adviser, that specifies that the replanting was necessary to restore a vineyard infested with phylloxera or Pierce’s disease. The taxpayer shall retain the certification for future audit purposes.
(4) Section 168(e)(3)(B)(vii) of the Internal Revenue Code shall not apply.
(5) Section 168(e)(3)(B)(viii) of the Internal Revenue Code, shall not apply.
(6) Section 168(e)(3)(E)(vii) of the Internal Revenue Code shall not apply.
(7) Section 168(e)(6) of the Internal Revenue Code, relating to qualified improvement property, shall not apply.
(8) Section 168(g) of the Internal Revenue Code, relating to alternative depreciation system for certain property, is modified as follows:
(A) Section 168(g)(1)(F) of the Internal Revenue Code shall not apply.
(B) Section 168(g)(1)(G) of the Internal Revenue Code shall not apply.
(C) The amendments made by Section 13204(a) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97) to Sections 168(g)(2)(C) and 168(g)(3)(B) of the Internal Revenue Code shall not apply.
(D) Section 168(g)(8) of the Internal Revenue Code, relating to electing real property trade or business, shall not apply.
(9) Section 168(i)(15)(D) of the Internal Revenue Code, relating to termination, is modified by substituting the phrase “December 31, 2007” for the phrase “December 31, 2025.”
(10) Section 168(j) of the Internal Revenue Code, relating to property on Indian reservations, shall not apply.
(11) Section 168(k) of the Internal Revenue Code, relating to special allowance for certain property, shall not apply.
(12) Section 168(l) of the Internal Revenue Code, relating to qualified second-generation biofuel plant property, shall not apply.
(13) Section 168(m) of the Internal Revenue Code, relating to special allowance for certain reuse and recycling property, shall not apply.
(b) Section 169 of the Internal Revenue Code, relating to amortization of pollution control facilities, is modified as follows:
(1) The deduction allowed by Section 169 of the Internal Revenue Code shall be allowed only with respect to facilities located in this state.
(2) The “state certifying authority,” as defined in Section 169(d)(2) of the Internal Revenue Code, means the State Air Resources Board, in the case of air pollution, and the State Water Resources Control Board, in the case of water pollution.
SEC. 13.
Section 17260 of the Revenue and Taxation Code is amended to read:17260.
(a) No deduction, other than depreciation, shall be allowed for expenditures for tertiary injectants as provided by Section 193 of the Internal Revenue Code, relating to tertiary injectants.(b) Section 263(c) of the Internal Revenue Code, relating to intangible drilling and development costs in the case of oil and gas wells and geothermal wells, shall not apply to intangible drilling and development costs, in the case of oil and gas wells, paid or incurred on or after January 1, 2024.
SEC. 14.
Section 17276 of the Revenue and Taxation Code is amended to read:17276.
Except as provided in Sections 17276.2, 17276.5, and 17276.6, as those sections read on November 30, 2014, and Sections 17276.1, 17276.4, and 17276.7, the deduction provided by Section 172 of the Internal Revenue Code, relating to net operating loss deduction, shall be modified as follows:(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.
(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.
(3) The amendments made by Section 13302(a)(1) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97) and Section 2303(a)(1) of the Coronavirus Aid, Relief, and Economic Security Act (Public Law 116-136) to Section 172(a) of the Internal Revenue Code, relating to the deduction allowed, shall not apply.
(b) (1) Except as provided in paragraphs (3) and (4), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:
(A) Fifty percent for any taxable year beginning before January 1, 2000.
(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.
(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.
(D) One hundred percent for any taxable year beginning on or after January 1, 2004.
(2) Section 172(b)(2)(C) of the Internal Revenue Code shall not apply.
(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:
(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (d).
(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:
(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (d).
(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).
(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).
(4) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following shall apply:
(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in subdivision (d).
(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:
(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (d).
(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).
(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).
(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.
(6) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of that paragraph, paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.
(7) For purposes of this section, the term “net loss” means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.
(c) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:
(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.
(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.
(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.
(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.
(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.
(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.
(d) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code shall apply as it read on January 1, 2015, and is modified to substitute “five taxable years” in lieu of “20 taxable years” except as otherwise provided in paragraphs (2) and (3).
(B) For a net operating loss for any taxable year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii)(I) of the Internal Revenue Code is modified to substitute “10 taxable years” in lieu of “20 taxable years.”
(C) Section 172(b)(1)(A) of the Internal Revenue Code, relating to years to which loss may be carried, shall not apply.
(D) Section 172(b)(1)(D) of the Internal Revenue Code, relating to special rule for losses arising in 2018, 2019, and 2020, shall not apply.
(2) For any taxable year beginning before January 1, 2000, in the case of a “new business,” the “five taxable years” in paragraph (1) shall be modified to read as follows:
(A) “Eight taxable years” for a net operating loss attributable to the first taxable year of that new business.
(B) “Seven taxable years” for a net operating loss attributable to the second taxable year of that new business.
(C) “Six taxable years” for a net operating loss attributable to the third taxable year of that new business.
(3) For any carryover of a net operating loss for which a deduction is denied by Section 17276.3, the carryover period specified in this subdivision shall be extended as follows:
(A) By one year for a net operating loss attributable to taxable years beginning in 1991.
(B) By two years for a net operating loss attributable to taxable years beginning before January 1, 1991.
(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a taxpayer that is under the jurisdiction of the court in a Title 11 or similar case at any time during the income year. The loss carryover provided in the preceding sentence does not apply to any loss incurred after the date the taxpayer is no longer under the jurisdiction of the court in a Title 11 or similar case.
(e) For purposes of this section:
(1) “Eligible small business” means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the taxable year.
(2) Except as provided in subdivision (f), “new business” means any trade or business activity that is first commenced in this state on or after January 1, 1994.
(3) “Title 11 or similar case” shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.
(4) In the case of any trade or business activity conducted by a partnership or “S” corporation paragraphs (1) and (2) shall be applied to the partnership or “S” corporation.
(f) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules apply:
(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules apply:
(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.
(B) Acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).
(2) In a case in which a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (“prior trade or business activity”), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayer’s (or any related person’s) current or prior trade or business activities.
(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).
(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).
(5) “Related person” shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.
(6) “Acquire” shall include any gift, inheritance, transfer incident to divorce, or any other transfer, whether or not for consideration.
(7) (A) For taxable years beginning on or after January 1, 1997, the term “new business” shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.
(B) For purposes of this paragraph:
(i) “Biopharmaceutical 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.
(ii) “Other biotechnology activities” means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.
(g) Notwithstanding any provisions of this section to the contrary, a deduction shall be allowed to a “qualified taxpayer” as provided in Sections 17276.2, 17276.5, and 17276.6, as those sections read on November 30, 2014, and Sections 17276.1, 17276.4, and 17276.7.
(h) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.
(i) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.
(j) Except as otherwise provided, the amendments made by Chapter 107 of the Statutes of 2000 apply to net operating losses for taxable years beginning on or after January 1, 2000.
SEC. 15.
Section 17276.1 of the Revenue and Taxation Code is amended to read:17276.1.
(a) A qualified taxpayer, as defined in Sections 17276.2, 17276.5, and 17276.6, as those sections read on November 30, 2014, and Sections 17276.1, 17276.4, and 17276.7, may elect to take the deduction provided by Section 172 of the Internal Revenue Code, relating to the net operating loss deduction, as modified by Section 17276, with the following exceptions:(1) Subdivision (a) of Section 17276, relating to years in which allowable losses are sustained, shall not be applicable.
(2) Subdivision (b) of Section 17276, relating to the 50-percent reduction of losses, shall not be applicable.
(b) The election to compute the net operating loss under this section shall be made in a statement attached to the original return, timely filed for the year in which the net operating loss is incurred and shall be irrevocable. In addition to the exceptions specified in subdivision (a), the provisions of Sections 17276.2, 17276.5, and 17276.6, as those sections read on November 30, 2014, or Sections 17276.1, 17276.4, and 17276.7, as appropriate, shall be applicable.
(c) Any carryover of a net operating loss sustained by a qualified taxpayer, as defined in subdivision (a) or (b) of Section 17276.2 as that section read immediately prior to January 1, 1997, shall, if previously elected, continue to be a deduction, as provided in subdivision (a), applied as if the provisions of subdivision (a) or (b) of Section 17276.2, as that section read prior to January 1, 1997, still applied.
SEC. 16.
Section 17276.3 of the Revenue and Taxation Code is amended to read:17276.3.
(a) Notwithstanding Sections 17276.2, 17276.5, and 17276.6, as those sections read on November 30, 2014, and Sections 17276, 17276.1, 17276.4, and 17276.7, as well as Section 172 of the Internal Revenue Code, relating to net operating loss deduction, no net operating loss deduction shall be allowed for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(b) For any 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, relating to net operating loss deduction, shall be extended as follows:
(1) By one year, for losses incurred in taxable years beginning on or after January 1, 2002, and before January 1, 2003.
(2) By two years, for losses incurred in taxable years beginning before January 1, 2002.
SEC. 17.
Section 17276.4 of the Revenue and Taxation Code is amended to read:17276.4.
(a) The term “qualified taxpayer” as used in Section 17276.1 includes a person or entity engaged in the conduct of a trade or business within the Los Angeles Revitalization Zone designated pursuant to Section 7102 of the Government Code. For purposes of this subdivision, all of the following shall apply:(1) A net operating loss shall not be a net operating loss carryback for any taxable year, and a net operating loss for any taxable year beginning on or after the date the area in which the taxpayer conducts a trade or business is designated the Los Angeles Revitalization Zone shall be a net operating loss carryover to each following taxable year that ends before the Los Angeles Revitalization Zone expiration date or to each of the 15 taxable years following the taxable year of loss, if longer.
(2) “Net operating loss” means the loss determined under Section 172 of the Internal Revenue Code, relating to net operating loss deduction, as modified by Section 17276.1, attributable to the taxpayer’s business activities within the Los Angeles Revitalization Zone (as defined in Section 7102 of the Government Code) prior to the Los Angeles Revitalization Zone expiration date. The attributable loss shall be determined in accordance with Chapter 17 (commencing with Section 25101) of Part 11, modified as follows:
(A) Loss shall be apportioned to the Los Angeles Revitalization Zone by multiplying total loss from the business by a fraction, the numerator of which is the property factor plus the payroll factor, and the denominator of which is 2.
(B) “The Los Angeles Revitalization Zone” shall be substituted for “this state.”
(3) A net operating loss carryover shall be a deduction only with respect to the taxpayer’s business income attributable to the Los Angeles Revitalization Zone (as defined in Section 7102 of the Government Code) determined in accordance with subdivision (c).
(4) If a loss carryover is allowable pursuant to this section for any taxable year after the Los Angeles Revitalization Zone designation has expired, the Los Angeles Revitalization Zone shall be deemed to remain in existence for purposes of computing the limitation set forth in paragraph (2) and allowing a net operating loss deduction.
(5) Attributable income shall be that portion of the taxpayer’s California source business income which is apportioned to the Los Angeles Revitalization Zone. For that purpose, the taxpayer’s business income attributable to sources in this state first shall be determined in accordance with Chapter 17 (commencing with Section 25101) of Part 11. That business income shall be further apportioned to the Los Angeles Revitalization Zone in accordance with Article 2 (commencing with Section 25120) of Chapter 17 of Part 11, modified as follows:
(A) Business income shall be apportioned to the Los Angeles Revitalization Zone by multiplying total California business income of the taxpayer by a fraction, the numerator of which is the property factor plus the payroll factor, and the denominator of which is 2.
(B) The property factor is a fraction, the numerator of which is the average value of the taxpayer’s real and tangible personal property owned or rented and used in the Los Angeles Revitalization Zone during the taxable year and the denominator of which is the average value of all the taxpayer’s real and tangible personal property owned or rented and used in this state during the taxable year.
(C) The payroll factor is a fraction, the numerator of which is the total amount paid by the taxpayer in the Los Angeles Revitalization Zone during the taxable year for compensation, and the denominator of which is the total compensation paid by the taxpayer in this state during the taxable year.
(6) “Los Angeles Revitalization Zone expiration date” means the date the Los Angeles Revitalization Zone designation expires, is repealed, or becomes inoperative pursuant to Section 7102, 7103, or 7104 of the Government Code.
(b) This section shall be inoperative on the first day of the taxable year beginning on or after the determination date, and each taxable year thereafter, with respect to the taxpayer’s business activities within a geographic area that is excluded from the map pursuant to Section 7102 of the Government Code, or an excluded area determined pursuant to Section 7104 of the Government Code. The determination date is the earlier of the first effective date of a determination under subdivision (c) of Section 7102 of the Government Code occurring after December 1, 1994, or the first effective date of an exclusion of an area from the amended Los Angeles Revitalization Zone under Section 7104 of the Government Code. However, if the taxpayer has any unused loss amount as of the date this section becomes inoperative, that unused loss amount may continue to be carried forward as provided in this section.
(c) A taxpayer who qualifies as a “qualified taxpayer” under one or more sections shall, for the taxable year of the net operating loss and any taxable year to which that net operating loss may be carried, designate on the original return filed for each year the section that applies to that taxpayer with respect to that net operating loss. If the taxpayer is eligible to qualify under more than one section, the designation is to be made after taking into account subdivision (d).
(d) If a taxpayer is eligible to qualify under this section and either Section 17276.2, 17276.5, or 17276.6, as those sections read on November 30, 2014, as a “qualified taxpayer,” with respect to a net operating loss in a taxable year, the taxpayer shall designate which section is to apply to the taxpayer.
(e) Notwithstanding Section 17276, the amount of the loss determined under this section or Section 17276.2, 17276.5, or 17276.6, as those sections read on November 30, 2014, shall be the only net operating loss allowed to be carried over from that taxable year and the designation under subdivision (c) shall be included in the election under Section 17276.1.
(f) This section shall cease to be operative on December 1, 1998. However, any unused net operating loss may continue to be carried over to following years as provided in this section.
SEC. 18.
Section 17276.7 of the Revenue and Taxation Code is amended to read:17276.7.
(a) The term “qualified taxpayer” as used in Section 17276.1 includes a person or entity that conducts a farming business that is directly affected by Pierce’s disease and its vectors. For purposes of this subdivision, all of the following shall apply:(1) A net operating loss shall not be a net operating loss carryback to any taxable year, and a net operating loss for any taxable year beginning on or after the date that the area in which the taxpayer conducts a farming business is affected by Pierce’s disease and its vectors shall be a net operating loss carryover to each of the nine taxable years following the taxable year of loss, until used.
(2) For purposes of this subdivision:
(A) “Net operating loss” means the loss determined under Section 172 of the Internal Revenue Code, relating to net operating loss deduction, as modified by Section 17276.1, attributable to the taxpayer’s farming business activities affected by Pierce’s disease and its vectors. That attributable loss shall be determined in accordance with Chapter 17 (commencing with Section 25101) of Part 11, modified for purposes of this subdivision, as follows:
(i) A loss shall be apportioned to the area affected by Pierce’s disease and its vectors by multiplying the total loss from the farming business by a fraction, the numerator of which is the property factor plus the payroll factor, and the denominator of which is two.
(ii) “The area affected by Pierce’s disease and its vectors” shall be substituted for “this state.”
(B) A net operating loss carryover computed under this section shall be allowed as a deduction only with respect to the taxpayer’s farming business income attributable to the area affected by Pierce’s disease and its vectors.
(C) Attributable income is that portion of the taxpayer’s California source farming business income that is apportioned to the area affected by Pierce’s disease and its vectors. For that purpose, that taxpayer’s farming business income attributable to sources in this state first shall be determined in accordance with Chapter 17 (commencing with Section 25101) of Part 11. That farming business income shall be further apportioned to the area affected by Pierce’s disease and its vectors in accordance with Article 2 (commencing with Section 25120) of Chapter 17 of Part 11, modified for purposes of this subdivision as follows:
(i) Farming business income shall be apportioned to the area affected by Pierce’s disease and its vectors by multiplying the total California farming business income of the taxpayer by a fraction, the numerator of which is the property factor plus the payroll factor, and the denominator of which is two. For purposes of this paragraph:
(I) The property factor is a fraction, the numerator of which is the average value of the taxpayer’s real and tangible personal property owned or rented and used in the area affected by Pierce’s disease and its vectors during the taxable year, and the denominator of which is the average value of all the taxpayer’s real and tangible personal property owned or rented and used in this state during the taxable year.
(II) The payroll factor is a fraction, the numerator of which is the total amount paid by the taxpayer in the area affected by Pierce’s disease and its vectors during the taxable year for compensation, and the denominator of which is the total compensation paid by the taxpayer in this state during the taxable year.
(ii) If a loss carryover is allowable pursuant to this section for any taxable year after Pierce’s disease and its vectors have occurred, the area affected by Pierce’s disease and its vectors shall be deemed to remain in existence for purposes of computing the limitation set forth in subparagraph (B) and allowing a net operating loss deduction.
(b) A taxpayer who qualifies as a “qualified taxpayer” under one or more sections shall, for the taxable year of the net operating loss and any taxable year to which that net operating loss may be carried, designate on the original return filed for each year the section that applies to that taxpayer with respect to that net operating loss. If the taxpayer is eligible to qualify under more than one section, the designation is to be made after taking into account subdivision (c).
(c) If a taxpayer is eligible to compute its net operating loss under this section and any of Section 17276.2, 17276.5, or 17276.6, as those sections read on November 30, 2014, or Section 17276.4, as a “qualified taxpayer,” with respect to a net operating loss in a taxable year, the taxpayer shall designate which section is to apply to the taxpayer.
(d) Notwithstanding Section 17276, the amount of the loss determined under this section or Section 17276.2, 17276.5, or 17276.6, as those sections read on November 30, 2014, or Section 17276.4, shall be the only net operating loss allowed to be carried over from that taxable year and the designation under subdivision (b) shall be included in the election under Section 17276.1.
(e) (1) A qualified taxpayer may utilize the net operating loss carryover allowed by this section only if the Department of Food and Agriculture confirms that the taxpayer’s farming business was affected by Pierce’s disease and its vectors during the year for which the qualified taxpayer seeks a deduction under this section.
(2) To make the determination required by this subdivision, the Department of Food and Agriculture shall utilize the definitions in Title 3 of the California Code of Regulations, relating to Pierce’s disease and its vectors.
(3) The Franchise Tax Board shall develop a management agreement with the cooperation of the Department of Food and Agriculture to establish procedures by which the Franchise Tax Board secures the information. This subdivision shall not be construed to require the Department of Food and Agriculture to confirm more than the fact that the taxpayer’s farming business was affected by Pierce’s disease and its vectors during the year for which the qualified taxpayer seeks a deduction.
(f) This section applies to net operating losses attributable to taxable years beginning on or after January 1, 2001, and before January 1, 2003.
SEC. 19.
Section 17276.21 of the Revenue and Taxation Code is amended to read:17276.21.
(a) Notwithstanding Sections 17276.2, 17276.5, and 17276.6, as those sections read on November 30, 2014, and Sections 17276, 17276.1, 17276.4, and 17276.7, as well as Section 172 of the Internal Revenue Code, relating to net operating loss deduction, no net operating loss deduction shall be allowed for any taxable year beginning on or after January 1, 2008, and before January 1, 2012.(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, 2010, and before January 1, 2011.
(2) By two years, for losses incurred in taxable years beginning on or after January 1, 2009, and before January 1, 2010.
(3) By three years, for losses incurred in taxable years beginning on or after January 1, 2008, and before January 1, 2009.
(4) By four years, for losses incurred in taxable years beginning before January 1, 2008.
(c) Notwithstanding subdivision (a), a net operating loss deduction shall be allowed for carryback of a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2019.
(d) The provisions of this section do not apply to the following taxpayers:
(1) For a taxable year beginning on or after January 1, 2008, and before January 1, 2010, this section does not apply to a taxpayer with net business income of less than five hundred thousand dollars ($500,000) for the taxable year. For purposes of this paragraph, business income means:
(A) Income from a trade or business, whether conducted by the taxpayer or by a passthrough entity owned directly or indirectly by the taxpayer. For purposes of this paragraph, the term “passthrough entity” means a partnership or an “S” corporation.
(B) Income from rental activity.
(C) Income attributable to a farming business.
(2) For a taxable year beginning on or after January 1, 2010, and before January 1, 2012, this section does not apply to a taxpayer with modified adjusted gross income of less than three hundred thousand dollars ($300,000) for the taxable year. For purposes of this paragraph, “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.
SEC. 20.
Section 17276.22 of the Revenue and Taxation Code is amended to read:17276.22.
Notwithstanding Section 17276.2, 17276.5, or 17276.6, as those sections read on November 30, 2014, or Section 17276.1, 17276.4, or 17276.7 to the contrary, a net operating loss attributable to a taxable year beginning on or after January 1, 2008, shall be a net operating carryover to each of the 20 taxable years following the year of the loss, and a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2019, shall also be a net operating loss carryback to each of the two taxable years preceding the taxable year of loss.SEC. 21.
Section 17276.24 of the Revenue and Taxation Code is amended to read:17276.24.
(a) Notwithstanding Sections 17276.2, 17276.5, and 17276.6, as those sections read on November 30, 2014, Section 17276.20, as that section read on December 31, 2015, Sections 17276, 17276.1, 17276.4, 17276.7, and 17276.22, and Section 172 of the Internal Revenue Code, relating to net operating loss deduction, a net operating loss deduction shall not be allowed for any taxable year beginning on or after January 1, 2024, and before January 1, 2027.(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, 2025, and before January 1, 2026.
(2) By two years, for losses incurred in taxable years beginning on or after January 1, 2024, and before January 1, 2025.
(3) By three years, for losses incurred in taxable years beginning before January 1, 2024.
(c) For a taxable year beginning on or after January 1, 2024, and before January 1, 2027, this section shall not apply to a taxpayer that has either of the following:
(1) Net business income of less than one million dollars ($1,000,000) for the taxable year.
(2) Modified adjusted gross income of less than one million dollars ($1,000,000) for the taxable year.
(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” corporation.
(e) (1) For taxable years beginning on or after January 1, 2025, and before January 1, 2026, this section shall not apply if, by May 14, 2025, the Director of Finance determines that General Fund money over the multiyear forecast is sufficient without the revenue impact of the net operating loss suspension and credit limitation, and pursuant to legislation in the annual Budget Act to not apply this section of law.
(2) For taxable years beginning on or after January 1, 2026, and before January 1, 2027, this section shall not apply if, by May 14, 2026, the Director of Finance determines that General Fund money over the multiyear forecast is sufficient without the revenue impact of the net operating loss suspension and credit limitation, and pursuant to legislation in the annual Budget Act to not apply this section of law.
SEC. 22.
Section 17279 of the Revenue and Taxation Code is repealed.SEC. 23.
Section 17302 of the Revenue and Taxation Code is amended to read:17302.
(a) In the case of a nonresident or part-year resident, the deduction provided by Section 215 of the Internal Revenue Code, relating to alimony, etc., payments, as it read on January 1, 2015, shall be allowed in computing “taxable income of a nonresident or part-year resident” in the same ratio (not to exceed 1.00) that California adjusted gross income (as defined in Section 17301.3), computed without regard to the alimony deduction, bears to total adjusted gross income (as defined in Section 17301.4), computed without regard to the alimony deduction.(b) Subdivision (a) shall not apply for any divorce or separation instrument executed after December 31, 2025, or for any divorce or separation instrument executed on or before December 31, 2025, and modified after that date, if the modification expressly provides that the amendments made by this subdivision apply to such modification.
SEC. 24.
Section 17551 of the Revenue and Taxation Code is amended to read:17551.
(a) Subchapter E of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to accounting periods and methods of accounting, shall apply, except as otherwise provided.(b) Section 444(c)(1) of the Internal Revenue Code, relating to effect of election, shall not apply.
(c) Section 451(b) of the Internal Revenue Code, relating to inclusion not later than for financial accounting purposes, shall not apply to specified credit card fees, as defined in Treasury Regulations Section 1.451-3(j)(2).
(d) (1) Notwithstanding the specified date contained in paragraph (1) of subdivision (a) of Section 17024.5, Section 457 of the Internal Revenue Code, relating to deferred compensation plans of state and local governments and tax-exempt organizations, shall apply, except as otherwise provided, without regard to taxable year to the same extent as applicable for federal income tax purposes.
(2) For taxable years beginning before January 1, 2025, the maximum deferred compensation for the taxable year that may be excluded from gross income under Section 457 of the Internal Revenue Code, as applicable for state purposes, shall not exceed the amount of deferred compensation that may be excluded from gross income under Section 457 of the Internal Revenue Code, as in effect on January 1, 2010, including additional elective deferrals under Section 414(v) of the Internal Revenue Code, as in effect on January 1, 2010.
(e) (1) For taxable years beginning on or after January 1, 2002, the basis of any person in the plan shall be increased by the amount of compensation not allowed to be excluded under subdivision (a).
(2) Any basis described in paragraph (1) shall be recovered in the manner specified in Section 17085.
(f) Notwithstanding the limitations provided in subdivision (a), any income attributable to compensation deferred in a plan in taxable years beginning on or after January 1, 2002, in conformance with Section 457 of the Internal Revenue Code, as applicable for federal and state purposes, shall not be includable in the gross income of the individual for whose benefit the plan was established until distributed pursuant to the provisions of the plan or by operation of law.
(g) Section 451(k) of the Internal Revenue Code, relating to special rule for sales or dispositions to implement Federal Energy Regulatory Commission or state electric restructuring policy, shall not apply.
(h) Section 457A of the Internal Revenue Code, relating to nonqualified deferred compensation from certain tax indifferent parties, shall not apply.
SEC. 25.
Section 17560.5 of the Revenue and Taxation Code is amended to read:17560.5.
(a) Section 461(j) of the Internal Revenue Code, relating to limitation on excess farm losses of certain taxpayers, shall not apply.(b) (1) Section 11012(a) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97), relating to limitation on excess business losses on noncorporate taxpayers, shall apply except as otherwise provided.
(2) Section 461(l)(1) of the Internal Revenue Code, relating to limitation, as amended by Section 11012(a) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97), is modified by substituting “beginning after December 31, 2018” for the phrase “beginning after December 31, 2017, and before January 1, 2026.”
(3) Section 461(l)(2) of the Internal Revenue Code, relating to disallowed loss carryover, as amended by Section 11012(a) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97), is modified by substituting “Any loss which is disallowed under paragraph (1) shall be treated as a carryover excess business loss for the following taxable year.” for “Any loss which is disallowed under paragraph (1) shall be treated as a net operating loss carryover to the following taxable year under section 172.”
(4) Section 461(l)(3)(A) of the Internal Revenue Code, as amended by Section 11012(a) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97), is modified by inserting “(i) the sum of (I) Any prior year carryover excess business losses, plus” below “In general, the term ‘excess business loss’ means the excess (if any) of.”
(5) Section 461(l)(3)(A)(i) of the Internal Revenue Code, as amended by Section 11012(a) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97), is modified by inserting “(II)” for “(i).”
(6) Section 461(l)(6) of the Internal Revenue Code, relating to coordination with section 469, as amended by Section 11012(a) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97), is modified by substituting “Section 17561” for “section 469.”
(c) (1) The amendments to Section 461(l) of the Internal Revenue Code made by Section 2304(a) and (b) of Public Law 116-136, relating to the modification of limitation on losses for taxpayers other than corporations, shall not apply, except as otherwise provided.
(2) Section 2304(b)(2)(B) of Public Law 116-136 shall apply.
(d) The amendments to Section 461(l)(1) of the Internal Revenue Code made by Section 9041(a) of Public Law 117-2, relating to the extension of limitation on excess business losses of noncorporate taxpayers, shall not apply.
(e) The amendments to Section 461(l)(1) of the Internal Revenue Code made by Section 13903(b)(1) of Public Law 117-169, relating to the extension of limitation on excess business losses of noncorporate taxpayers, shall not apply.
SEC. 26.
Section 17737 of the Revenue and Taxation Code is amended to read:17737.
(a) For purposes of computing the taxable income of the estate or trust and the taxable income of a spouse to whom Section 682(a) of the Internal Revenue Code, relating to income of an estate or trust in the case of divorce, etc., as it read on January 1, 2015, applies, that spouse shall be considered as the beneficiary for purposes of this chapter.(b) Subdivision (a) shall not apply for any divorce or separation instrument executed after December 31, 2025, or for any divorce or separation instrument executed on or before December 31, 2025, and modified after that date, if the modification expressly provides that the amendments made by this subdivision apply to such modification.
SEC. 27.
Section 17865 of the Revenue and Taxation Code is repealed.SEC. 28.
Section 18044 of the Revenue and Taxation Code is repealed.SEC. 29.
Section 18622.5 of the Revenue and Taxation Code is amended to read:18622.5.
(a) Notwithstanding Section 18622, if any item required to be shown on a federal partnership return, including any partnership-related item, is changed or corrected by the Commissioner of Internal Revenue or other officer of the United States or other competent authority, and the partnership is issued an adjustment under Section 6225 of the Internal Revenue Code or makes a federal election for alternative payment with the Internal Revenue Service as part of a Partnership Level Audit, the partnership shall report each change or correction to the Franchise Tax Board for the reviewed year within six months after the date of each final federal determination. The report of adjustments or return reporting the adjustments shall be sufficiently detailed to allow computation of the California tax change resulting from the federal adjustment and shall be reported in the form and manner as prescribed by the Franchise Tax Board.(b) For purposes of this section the following terms have the following meanings:
(1) “Administrative adjustment request” means an administrative adjustment request filed by a partnership under Section 6227 of the Internal Revenue Code.
(2) “California share of the adjustments” means the adjustments described in subdivision (a), subject to the provisions of Chapter 11 (commencing with Section 17951) of Part 10 and the provisions of Chapter 17 (commencing with Section 25101) of Part 11.
(3) “Date of each final federal determination” means the date on which each adjustment or resolution resulting from an Internal Revenue Service examination is assessed pursuant to Section 6203 of the Internal Revenue Code.
(4) “Direct partner” means a partner that holds an interest directly in a partnership or pass-through entity.
(5) “Federal adjustment” means a change to an item or amount determined under the Internal Revenue Code that is used by a partner or partnership to compute state tax owed for the reviewed year whether that change results from action by the Internal Revenue Service, including a Partnership Level Audit, or the filing of a federal refund claim, or an Administrative Adjustment Request by the partnership. A Federal Adjustment is positive to the extent that it increases taxable income as determined under Part 10 (commencing with Section 17001) or net income as determined under Part 11 (commencing with Section 23001) and is negative to the extent that it decreases taxable income as determined under Part 10 (commencing with Section 17001) or net income as determined under Part 11 (commencing with Section 23001).
(6) “Federal election for alternative payment” refers to the election described in Section 6226 of the Internal Revenue Code, relating to alternative to payment of imputed underpayment by partnership.
(7) “Indirect partner” means a partner in a partnership or pass-through entity that itself holds an interest directly, or through another indirect partner, in a partnership or pass-through entity.
(8) “Partnership level audit” means an examination by the Internal Revenue Service at the partnership level pursuant to Subchapter C of Chapter 63 of Subtitle F of Title 26 of the Internal Revenue Code, which results in a federal adjustment.
(9) “Publicly traded partnership” means either of the following:
(A) A partnership that is a publicly traded partnership within the meaning of Section 7704 of the Internal Revenue Code.
(B) Any other partnership where more than 10 percent of the profits or capital interest is owned directly or indirectly by a partnership described in subparagraph (A).
(10) “Reallocation adjustment” means a federal adjustment that changes the shares of items of partnership income, gain, loss, expense, or credit allocated to direct partners. A positive reallocation adjustment means a reallocation adjustment that would increase state taxable income for direct partners, and a negative reallocation adjustment means a reallocation adjustment that would decrease state taxable income for direct partners.
(11) “Reviewed year” has the meaning provided in Section 6225(d)(1) of the Internal Revenue Code.
(12) “Tiered partner” means any partner that is a partnership or pass-through entity.
(13) “Partnership-related item” has the meaning provided in Section 6241(2)(B) of the Internal Revenue Code.
(c) (1) Notwithstanding Section 17024.5, and except as otherwise provided in this subdivision, any election made for federal purposes under the provisions of Subchapter C (commencing with Section 6221) of Chapter 63 of the Internal Revenue Code shall be applicable for purposes of Part 10 (commencing with Section 17001), this part, and Part 11 (commencing with Section 23001), and a separate election shall not be allowed.
(2) In the case of any unitary partner whose distributive share of a partnership’s income and apportionment factors would properly be included in the computation of that partner’s business income (within the meaning of subdivision (a) of Section 25120) apportioned to California on that partner’s original California franchise or income tax return, subparagraph (A) of paragraph (1) of subdivision (d) shall not apply and instead such partner shall be treated as having filed an amended return within the meaning of Section 6225(c)(2) of the Internal Revenue Code for purposes of this section and that partner shall file an amended return to separately report its California share of the adjustments under Section 18622.
(3) (A) Notwithstanding paragraph (1), and subject to the requirement of paragraph (2), a partnership may file a request, in the form and manner specified by the Franchise Tax Board, to make an election different from their federal election under this section, and the Franchise Tax Board shall grant such requests as specified in subparagraphs (B) and (C).
(B) In the case where an audited partnership or a tiered partnership makes a federal election for alternative payment, which requires adjustments to be taken into account by the partners, the Franchise Tax Board shall grant a request to make an election different from their federal election pursuant to subparagraph (A), provided that the partnership properly computes the amount of the tax due under the provisions specified in subparagraph (A) of paragraph (1) of subdivision (d).
(C) In the case where an audited partnership pays the tax at the federal level under Section 6225(a) of the Internal Revenue Code or a tiered partnership pays the tax at the federal level under Section 6226(b)(4)(A)(ii)(II), the Franchise Tax Board shall grant a request to make an election different from their federal election pursuant to subparagraph (A), provided the partnership is able to demonstrate to the Franchise Tax Board that the Franchise Tax Board’s ability to collect any state income or franchise taxes would not be impeded and the partnership properly follows the reporting provisions specified in paragraph (2) of subdivision (d).
(4) (A) Each tiered partner and each indirect partner of an audited partnership shall be subject to the applicable election, reporting and payment requirements for audited partnerships and their direct partners under this section.
(B) Each tiered partner and indirect partner must make all reports and payments required to be made by such partners under this section no later than 90 days after the time for filing and furnishing statements to tiered partners and their partners, as required under Section 6226 of the Internal Revenue Code and any regulations thereunder.
(d) (1) (A) If the change or correction described in subdivision (a) results in an increase of the amount of tax payable under Part 10 (commencing with Section 17001), this part, or Part 11 (commencing with Section 23001), and if paragraph (2) does not apply, then a tax is hereby imposed on the partnership determined as follows, in lieu of taxes owed by its direct partners and indirect partners:
(i) Exclude from federal adjustments and any positive reallocation adjustments the distributive share of these adjustments made to a tax-exempt partner that is not unrelated business taxable income within the meaning of Section 23731.
(ii) Exclude from federal adjustments and any positive reallocation adjustments the distributive share of the adjustments made to a partner that has previously filed an amended return under Section 18622 reporting the distributive share and paid any additional state tax liability due.
(iii) With respect to any corporate partner or tax-exempt partner that is not excluded under paragraph (2) of subdivision (c) or clauses (i) or (ii), determine the total distributive share of all federal adjustments and positive reallocation adjustments, and apportion and allocate the adjustments as provided in Chapter 17 (commencing with Section 25101) of Part 11, and multiply that amount by the highest marginal tax rate provided in Sections 23151 or 23501, as applicable, for the reviewed year.
(iv) With respect to all tiered partners, nonresident individual partners, or nonresident fiduciary partners not excluded under paragraph (2) of subdivision (c) or clause (i) or (ii) or taken into account under clause (iii), determine the total distributive share of all federal adjustments and positive reallocation adjustments and compute the amount of California source income attributable to the adjustments as provided in Chapter 11 (commencing with Section 17951) of Part 10 and the provisions of Chapter 17 (commencing with Section 25101) of Part 11, and multiply that amount by the highest marginal tax rate applicable to individuals for the reviewed year.
(v) With respect to all resident partners, resident fiduciary partners, or any other partners not excluded under paragraph (2) of subdivision (c) or clauses (i) or (ii) or taken into account under clauses (iii) or (iv), determine the total distributive share of all federal adjustments and positive reallocation adjustments that are subject to tax under subdivisions (a) or (c) of Section 17041, and multiply that amount by the highest marginal tax rate applicable to individuals for the reviewed year.
(vi) The total tax imposed under this paragraph shall be equal to the sum of the amounts determined under clauses (iii), (iv), and (v). The tax imposed under this subdivision shall be due and payable as provided in Section 19001 and treated as if imposed under Part 10 (commencing with Section 17001).
(B) Penalties and interest, as applicable, shall be imposed under Article 6 of Chapter 4 (commencing with Section 19101) and Article 7 of Chapter 4 (commencing with Section 19131) from the original due date of the partnership return for the reviewed year.
(2) If the partnership makes a federal election for alternative payment under Section 6226 of the Internal Revenue Code, then the partnership shall file an amended California Nonresident Group Return for all nonresident direct partners under Section 18535 and pay the additional amount of tax due that would have been due had the federal adjustments been reported properly as required. For any partners not included in the amended California Nonresident Group Return, the amount reported to each partner shall be an adjustment to the partner’s share of partnership items as a result of the change or correction in subdivision (a) and each partner shall report any adjustments in accordance with Section 18622.
(e) Subject to the approval of the Franchise Tax Board, an audited partnership or tiered partner may enter into an alternative agreement with the Franchise Tax Board regarding any issue resulting from a federal audit adjustment, amended federal return, or administrative adjustment that would otherwise be subject to this section, including, but not limited to, the reporting and payment of tax, applicable time requirements, or any other provision that will provide, to the satisfaction of the Franchise Tax Board, for the reporting and payment of any taxes, penalties, and interest due pursuant to this section.
(f) (1) If a partnership files a report or return as required under subdivision (a) after the six-month period specified in subdivision (a) or if the partnership or partner does not pay the tax required under subdivision (c) when due and payable, the Franchise Tax Board shall mail notice to the partnership of the deficiency proposed to be assessed pursuant to Section 19033. The deficiency proposed to be assessed must be mailed within four years from the date the change or correction was reported pursuant to subdivision (a), the return or payment was due, or within four years from the date the return was filed, whichever period expires later.
(2) If a partnership files a report, or files a return required under subdivision (a) within six months of the final federal determination, the Franchise Tax Board shall mail notice to the partnership of the deficiency proposed to be assessed pursuant to Section 19033. The deficiency proposed to be assessed must be mailed within two years from the date the change or correction was reported pursuant to subdivision (a).
(3) If the partnership fails to file a report or return as required by subdivision (a), a notice of proposed deficiency assessment resulting from the federal determination may be made at any time.
(g) (1) Nothing in this section is intended to prevent the Franchise Tax Board from assessing direct partners or indirect partners for taxes they owe in the event that an audited partnership or tiered partner fails to timely make any report or payment required by this section for any reason.
(2) If a partnership’s report of the California tax changes resulting from the adjustments filed pursuant to subdivision (a) results in an overstatement of California taxable or net income, the adjustment shall be applied as follows:
(A) If the original adjustments were passed through to the partners under paragraph (2) of subdivision (c), the revised adjustment shall be passed through to the partners. The partnership shall file or amend the return as described in subdivision (a).
(B) If the tax on the adjustments was originally paid by the partnership under paragraph (1) of subdivision (c), the partnership may amend the return filed under paragraph (1) of subdivision (c) to claim a refund of that overpayment within the time periods provided by Section 19311. This subparagraph shall not allow a partnership to claim an overpayment for amounts not actually paid by the partnership.
(3) If properly reported and paid by the partnership or tiered partner, the amount determined in subparagraph (A) of paragraph (1) of subdivision (d) or similarly under an optional election, will be treated as paid in satisfaction of taxes owed by its direct and indirect partners on the same federal adjustments. The direct partners or indirect partners may not take any deduction or credit for this amount or claim a refund of the amount in this state. Nothing in this subdivision shall preclude a partner from claiming a credit against taxes paid to this state pursuant to Chapter 12 (commencing with Section 18001) of Part 10 of Division 2, with respect to any amount paid by the partnership, or any amount paid by any tiered partnership that is a direct partner or indirect partner in the partnership, on that partner’s behalf to another state.
(h) (1) Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any standard, criterion, procedure, determination, rule, notice, or guideline established or issued by the Franchise Tax Board pursuant to this section, including any requirements or procedures necessary to seek a written consent under paragraph (3) of subdivision (g).
(2) The Franchise Tax Board may prescribe regulations necessary or appropriate to implement the purposes of this section, including regulations to determine the California share of adjustments.
(i) A publicly traded partnership that is otherwise in compliance with this section shall not be subject to paragraph (2) of subdivision (d). For purposes of the reporting requirements set forth in subdivision (a), a publicly traded partnership shall only be required to report their direct partners’ distributive share of a federal adjustment to the Franchise Tax Board. A publicly traded partnership shall be deemed to have made a federal election for alternative payment pursuant to Section 6226 of the Internal Revenue Code unless the publicly traded partnership files a request to make an election different from their federal election pursuant to paragraph (3) of subdivision (c).
(j) In order to reduce the administrative burden on taxpayers that may be imposed by additional filings and payments that do not contribute materially to revenue, the Franchise Tax Board shall convene a meeting or meetings of interested parties for the purpose of determining appropriate de minimis partner reporting and payment requirements as the result of a partnership level audit.
(k) (1) With respect to an action required or permitted to be taken by a partnership under this section and a proceeding under this part with respect to federal adjustments arising from a partnership level audit or an administrative adjustment request, the state partnership representative for the reviewed year shall have the sole authority to act on behalf of the partnership, and its partners and indirect partners shall be bound by those actions.
(2) The state partnership representative for the reviewed year is the partnership’s federal partnership representative, unless the partnership designates in writing another person as its state partnership representative.
(3) The Franchise Tax Board may establish reasonable qualifications for and procedures for designating a person, other than the federal partnership representative, to be the state partnership representative.
(l) This section shall apply to final federal determinations assessed pursuant to amendments made to Subchapter C of Chapter 63 of the Internal Revenue Code.
SEC. 30.
Section 18624 of the Revenue and Taxation Code is amended to read:18624.
(a) Section 6109 of the Internal Revenue Code, relating to identifying numbers, shall apply, except as otherwise provided.(b) Identifying numbers shall be required on state tax returns, statements, or other documents in the form and manner as the Franchise Tax Board may require.
(c) Section 6109(h) of the Internal Revenue Code, relating to identifying information required with respect to certain seller-provided financing, shall not apply.
(d) (1) For taxable years beginning on or after January 1, 2021, the Franchise Tax Board shall not require a nonresident alien who is not eligible for or has not been issued a federal social security number (SSN) or a federal individual taxpayer identification number (ITIN) to provide a SSN or ITIN in order to file a state tax return, statement, or other document required under this part. If a nonresident alien subsequently becomes eligible for and is issued a SSN or ITIN, the Franchise Tax Board may require the nonresident alien to provide a letter or other form documenting the nonresident alien’s SSN or ITIN.
(2) For purposes of this subdivision, “nonresident alien” shall mean a nonresident, as defined in Section 17015, who also meets the requirements of Section 7701(b)(1)(B) of the Internal Revenue Code.
SEC. 31.
Section 18666 of the Revenue and Taxation Code is amended to read:18666.
(a) Section 1446 of the Internal Revenue Code, relating to withholding of tax on foreign partners’ share of effectively connected income, shall apply to the extent that the amounts represent income from California sources, except as otherwise provided.(b) (1) The rate of tax referred to in Section 1446(b)(2)(A) of the Internal Revenue Code shall be the maximum tax rate specified in Sections 17041 and 17043, as applicable, rather than the rate specified in Section 1 of the Internal Revenue Code.
(2) The rate of tax referred to in Section 1446(b)(2)(B) of the Internal Revenue Code shall be the rate specified in Section 23151, 23181, or 23183, as applicable, rather than the rate specified in Section 11 of the Internal Revenue Code.
(3) Section 1446(f) of the Internal Revenue Code, relating to special rules for withholding on dispositions of partnership interests, shall not apply.
SEC. 32.
Section 19311 of the Revenue and Taxation Code is amended to read:19311.
(a) (1) If a change or correction is made or allowed by the Commissioner of Internal Revenue or other officer of the United States or other competent authority, a claim for credit or refund resulting from the adjustment may be filed by the taxpayer within two years from the date of the final federal determination (as defined in Section 18622 or 18622.5), or within the period provided in Section 19306, 19307, 19308, or 19316, whichever period expires later.(2) Within two years of the date of the final determination (as defined in Section 18622 or 18622.5) or within the period provided in Section 19306, 19307, or 19308, whichever period expires later, the Franchise Tax Board may allow a credit, make a refund, or mail to the taxpayer a notice of proposed overpayment resulting from the final federal determination.
(b) The amendments made by the act adding this paragraph shall apply, without regard to taxable year, to federal determinations that become final on or after January 1, 2002.
(c) For adjustments resulting in a tax imposed under paragraph (1) of subdivision (c) of Section 18622.5, paragraph (1) of subdivision (a) is modified by substituting “partnership” for “taxpayer.”
SEC. 33.
Section 23051.5 of the Revenue and Taxation Code is amended to read:23051.5.
(a) (1) Unless otherwise specifically provided, the terms “Internal Revenue Code,” “Internal Revenue Code of 1954,” or “Internal Revenue Code of 1986,” for purposes of this part, mean Title 26 of the United States Code, including all amendments thereto, as enacted on the specified date for the applicable taxable year as defined in paragraph (1) of subdivision (a) of Section 17024.5.(2) (A) Unless otherwise specifically provided, for federal laws enacted on or after January 1, 1987, and on or before the specified date for the taxable year, uncodified provisions that relate to provisions of the Internal Revenue Code that are incorporated for purposes of this part, shall be applicable to the same taxable years as the incorporated provisions.
(B) In the case where Section 901 of the Economic Growth and Tax Relief Act of 2001 (Public Law 107-16) applies to any provision of the Internal Revenue Code that is incorporated for purposes of this part, Section 901 of the Economic Growth and Tax Relief Act of 2001 (Public Law 107-16) shall apply for purposes of this part in the same manner and to the same taxable years as it applies for federal income tax purposes.
(3) Subtitle G (Tax Technical Corrections) and Part I of Subtitle H (Repeal of Expired or Obsolete Provisions) of the Revenue Reconciliation Act of 1990 (Public Law 101-508) modified numerous provisions of the Internal Revenue Code and provisions of prior federal acts, some of which are incorporated by reference into this part. Unless otherwise provided, the provisions described in the preceding sentence, to the extent that they modify provisions that are incorporated into this part, are declaratory of existing law and shall be applied in the same manner and for the same periods as specified in the Revenue Reconciliation Act of 1990.
(b) Unless otherwise specifically provided, when applying the Internal Revenue Code for purposes of this part, a reference to any of the following is not applicable for purposes of this part:
(1) Domestic International Sales Corporations (DISC), as defined in Section 992(a) of the Internal Revenue Code.
(2) Foreign Sales Corporations (FSC), as defined in Section 922(a) of the Internal Revenue Code.
(3) A personal holding company, as defined in Section 542 of the Internal Revenue Code.
(4) A foreign personal holding company, as defined in Section 552 of the Internal Revenue Code.
(5) A foreign trust as defined in Section 679 of the Internal Revenue Code.
(6) Foreign income taxes and foreign income tax credits.
(7) Federal tax credits and carryovers of federal tax credits.
(c) (1) The provisions contained in Sections 41 to 44, inclusive, and Section 172 of the Tax Reform Act of 1984 (Public Law 98-369), relating to treatment of debt instruments, is not applicable for taxable years beginning before January 1, 1987.
(2) The provisions contained in Public Law 99-121, relating to the treatment of debt instruments, is not applicable for taxable years beginning before January 1, 1987.
(3) For taxable years beginning on and after January 1, 1987, the provisions referred to by paragraphs (1) and (2) shall be applicable for purposes of this part in the same manner and with respect to the same obligations as the federal provisions, except as otherwise provided in this part.
(d) When applying the Internal Revenue Code for purposes of this part, regulations promulgated in final form or issued as temporary regulations by “the secretary” shall be applicable as regulations issued under this part to the extent that they do not conflict with this part or with regulations issued by the Franchise Tax Board.
(e) Whenever this part allows a taxpayer to make an election, the following rules shall apply:
(1) A proper election filed with the Internal Revenue Service in accordance with the Internal Revenue Code or regulations issued by “the secretary” shall be deemed to be a proper election for purposes of this part, unless otherwise expressly provided in this part or in regulations issued by the Franchise Tax Board.
(2) A copy of that election shall be furnished to the Franchise Tax Board upon request.
(3) (A) Except as provided in subparagraph (B), in order to obtain treatment other than that elected for federal purposes, a separate election shall be filed with the Franchise Tax Board at the time and in the manner that may be required by the Franchise Tax Board.
(B) (i) If a taxpayer makes a proper election for federal income tax purposes prior to the time that taxpayer becomes subject to the tax imposed under this part or Part 10 (commencing with Section 17001), that taxpayer is deemed to have made the same election for purposes of the tax imposed by this part, Part 10 (commencing with Section 17001), and Part 10.2 (commencing with Section 18401), as applicable, and that taxpayer may not make a separate election for California tax purposes unless that separate election is expressly authorized by this part, Part 10 (commencing with Section 17001), or Part 10.2 (commencing with Section 18401), or by regulations issued by the Franchise Tax Board.
(ii) If a taxpayer has not made a proper election for federal income tax purposes prior to the time that taxpayer becomes subject to tax under this part or Part 10 (commencing with Section 17001), that taxpayer may not make a separate California election for purposes of this part, Part 10 (commencing with Section 17001), or Part 10.2 (commencing with Section 18401), unless that separate election is expressly authorized by this part, Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), or by regulations issued by the Franchise Tax Board.
(iii) This subparagraph applies only to the extent that the provisions of the Internal Revenue Code or regulations issued by “the secretary” authorizing an election for federal income tax purposes apply for purposes of this part, Part 10 (commencing with Section 17001), or Part 10.2 (commencing with Section 18401).
(f) Whenever this part allows or requires a taxpayer to file an application or seek consent, the rules set forth in subdivision (e) shall apply to that application or consent.
(g) When applying the Internal Revenue Code for purposes of determining the statute of limitations under this part, any reference to a period of three years shall be modified to read four years for purposes of this part.
(h) When applying, for purposes of this part, any section of the Internal Revenue Code or any applicable regulation thereunder, all of the following shall apply:
(1) For purposes of Chapter 2 (commencing with Section 23101), Chapter 2.5 (commencing with Section 23400), and Chapter 3 (commencing with Section 23501), the term “taxable income” shall mean “net income.”
(2) For purposes of Article 2 (commencing with Section 23731) of Chapter 4, the term “taxable income” shall mean “unrelated business taxable income,” as defined by Section 23732.
(3) Any reference to “subtitle,” “Chapter 1,” or “chapter” shall mean this part.
(4) The provisions of Section 7806 of the Internal Revenue Code, relating to construction of title, shall apply.
(5) Any provision of the Internal Revenue Code that becomes operative on or after the specified date for that taxable year shall become operative on the same date for purposes of this part.
(6) Any provision of the Internal Revenue Code that becomes inoperative on or after the specified date for that taxable year shall become inoperative on the same date for purposes of this part.
(7) Due account shall be made for differences in federal and state terminology, effective dates, substitution of “Franchise Tax Board” for “secretary” when appropriate, and other obvious differences.
(8) Any provision of the Internal Revenue Code that refers to a “corporation” shall, when applicable for purposes of this part, include a “bank,” as defined by Section 23039.
(9) Except as otherwise provided, any reference to Section 501 of the Internal Revenue Code shall be interpreted to also refer to Section 23701.
(i) Any reference to a specific provision of the Internal Revenue Code shall include modifications of that provision, if any, in this part.
SEC. 34.
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, 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, 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)(ii)(I) of the Internal Revenue Code, relating to qualified research consortium, is modified to read “this part or Part 10 (commencing with Section 17001).”
(h) (1) (A) For each taxable year beginning on or after January 1, 2000, and before January 1, 2025, the election of alternative incremental credit under Section 41(c)(4) of the Internal Revenue Code, as applicable for state purposes, shall apply as that section was in effect on January 1, 2015, and as modified as follows:
(i) 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.”
(ii) 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.”
(iii) 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.”
(B) Section 41(c)(4)(B) of the Internal Revenue Code 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, and before January 1, 2025. That election shall apply to the taxable year for which made and all succeeding taxable years beginning before January 1, 2025, unless revoked with the consent of the Franchise Tax Board.
(2) (A) For taxable years beginning on or after January 1, 2025, Section 41(c)(4) of the Internal Revenue Code, relating to election of the alternative simplified credit, shall apply, and is modified as follows:
(i) The reference to “14 percent” in Section 41(c)(4)(A) of the Internal Revenue Code is modified to read “3 percent.”
(ii) The reference to “6 percent” in Section 41(c)(4)(B)(ii) of the Internal Revenue Code is modified to read “1.3 percent.”
(B) Section 41(c)(4)(C) of the Internal Revenue Code 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, 2025. 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.
(i) 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.
(j) Section 41(h) of the Internal Revenue Code, relating to treatment of credit for qualified small businesses, shall not apply.
(k) 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.
(l) Section 41(a)(3) of the Internal Revenue Code shall not apply.
(m) 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.
(n) Section 41(f)(6) of the Internal Revenue Code, relating to energy research consortium, shall not apply.
SEC. 35.
Section 24355.5 of the Revenue and Taxation Code is amended to read:24355.5.
Section 197 of the Internal Revenue Code, relating to amortization of goodwill and certain other intangibles, shall apply.SEC. 36.
Section 24416 of the Revenue and Taxation Code is amended to read:24416.
Except as provided in Sections 24416.1, 24416.4, and 24416.7, or Sections 24416.2, 24416.5, and 24416.6, as those sections read on November 30, 2014, a net operating loss deduction shall be allowed in computing net income under Section 24341 and shall be determined in accordance with Section 172 of the Internal Revenue Code, except as otherwise provided.(a) (1) Net operating losses attributable to taxable years beginning before January 1, 1987, shall not be allowed.
(2) A net operating loss shall not be carried forward to any taxable year beginning before January 1, 1987.
(3) The amendments made by Section 13302(a)(1) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97) and Section 2303(a)(1) of the Coronavirus Aid, Relief, and Economic Security Act (Public Law 116-136) to Section 172(a) of the Internal Revenue Code, relating to the deduction allowed, shall not apply.
(b) (1) Except as provided in paragraphs (3) and (4), the provisions of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, shall be modified so that the applicable percentage of the entire amount of the net operating loss for any taxable year shall be eligible for carryover to any subsequent taxable year. For purposes of this subdivision, the applicable percentage shall be:
(A) Fifty percent for any taxable year beginning before January 1, 2000.
(B) Fifty-five percent for any taxable year beginning on or after January 1, 2000, and before January 1, 2002.
(C) Sixty percent for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.
(D) One hundred percent for any taxable year beginning on or after January 1, 2004.
(2) Section 172(b)(2)(C) of the Internal Revenue Code shall not apply.
(3) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates a new business during that taxable year, each of the following shall apply to each loss incurred during the first three taxable years of operating the new business:
(A) If the net operating loss is equal to or less than the net loss from the new business, 100 percent of the net operating loss shall be carried forward as provided in subdivision (e).
(B) If the net operating loss is greater than the net loss from the new business, the net operating loss shall be carried over as follows:
(i) With respect to an amount equal to the net loss from the new business, 100 percent of that amount shall be carried forward as provided in subdivision (e).
(ii) With respect to the portion of the net operating loss that exceeds the net loss from the new business, the applicable percentage of that amount shall be carried forward as provided in subdivision (d).
(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).
(4) In the case of a taxpayer who has a net operating loss in any taxable year beginning on or after January 1, 1994, and who operates an eligible small business during that taxable year, each of the following apply:
(A) If the net operating loss is equal to or less than the net loss from the eligible small business, 100 percent of the net operating loss shall be carried forward to the taxable years specified in paragraph (1) of subdivision (e).
(B) If the net operating loss is greater than the net loss from the eligible small business, the net operating loss shall be carried over as follows:
(i) With respect to an amount equal to the net loss from the eligible small business, 100 percent of that amount shall be carried forward as provided in subdivision (e).
(ii) With respect to that portion of the net operating loss that exceeds the net loss from the eligible small business, the applicable percentage of that amount shall be carried forward as provided in subdivision (e).
(C) For purposes of Section 172(b)(2) of the Internal Revenue Code, relating to amount of carrybacks and carryovers, the amount described in clause (ii) of subparagraph (B) shall be absorbed before the amount described in clause (i) of subparagraph (B).
(5) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates a business that qualifies as both a new business and an eligible small business under this section, that business shall be treated as a new business for the first three taxable years of the new business.
(6) In the case of a taxpayer who has a net operating loss in a taxable year beginning on or after January 1, 1994, and who operates more than one business, and more than one of those businesses qualifies as either a new business or an eligible small business under this section, paragraph (2) shall be applied first, except that if there is any remaining portion of the net operating loss after application of clause (i) of subparagraph (B) of paragraph (2), paragraph (3) shall be applied to the remaining portion of the net operating loss as though that remaining portion of the net operating loss constituted the entire net operating loss.
(7) For purposes of this section, “net loss” means the amount of net loss after application of Sections 465 and 469 of the Internal Revenue Code.
(c) For any taxable year in which the taxpayer has in effect a water’s-edge election under Section 25110, the deduction of a net operating loss carryover shall be denied to the extent that the net operating loss carryover was determined by taking into account the income and factors of an affiliated corporation in a combined report whose income and apportionment factors would not have been taken into account if a water’s-edge election under Section 25110 had been in effect for the taxable year in which the loss was incurred.
(d) Section 172(b)(1) of the Internal Revenue Code, relating to years to which the loss may be carried, is modified as follows:
(1) Net operating loss carrybacks shall not be allowed for any net operating losses attributable to taxable years beginning after December 31, 2018, and before January 1, 2013.
(2) A net operating loss attributable to taxable years beginning on or after January 1, 2013, and before January 1, 2019, shall be a net operating loss carryback to each of the two taxable years preceding the taxable year of the loss in lieu of the number of years provided therein.
(A) For a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2014, the amount of carryback to any taxable year shall not exceed 50 percent of the net operating loss.
(B) For a net operating loss attributable to a taxable year beginning on or after January 1, 2014, and before January 1, 2015, the amount of carryback to any taxable year shall not exceed 75 percent of the net operating loss.
(C) For a net operating loss attributable to a taxable year beginning on or after January 1, 2015, and before January 1, 2019, the amount of carryback to any taxable year shall not exceed 100 percent of the net operating loss.
(3) A net operating loss carryback shall not be carried back to any taxable year beginning before January 1, 2011.
(e) (1) (A) For a net operating loss for any taxable year beginning on or after January 1, 1987, and before January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal Revenue Code shall apply as it read on January 1, 2015, and is modified to substitute “five taxable years” in lieu of “20 years” except as otherwise provided in paragraphs (2), (3), and (4).
(B) For a net operating loss for any income year beginning on or after January 1, 2000, and before January 1, 2008, Section 172(b)(1)(A)(ii)(I) of the Internal Revenue Code is modified to substitute “10 taxable years” in lieu of “20 taxable years.”
(C) Section 172(b)(1)(A) of the Internal Revenue Code shall not apply.
(D) Section 172(b)(1)(D) of the Internal Revenue Code shall not apply.
(2) For any income year beginning before January 1, 2000, in the case of a “new business,” the “five taxable years” referred to in paragraph (1) shall be modified to read as follows:
(A) “Eight taxable years” for a net operating loss attributable to the first taxable year of that new business.
(B) “Seven taxable years” for a net operating loss attributable to the second taxable year of that new business.
(C) “Six taxable years” for a net operating loss attributable to the third taxable year of that new business.
(3) For any carryover of a net operating loss for which a deduction is denied by Section 24416.3, the carryover period specified in this subdivision shall be extended as follows:
(A) By one year for a net operating loss attributable to taxable years beginning in 1991.
(B) By two years for a net operating loss attributable to taxable years beginning prior to January 1, 1991.
(4) The net operating loss attributable to taxable years beginning on or after January 1, 1987, and before January 1, 1994, shall be a net operating loss carryover to each of the 10 taxable years following the year of the loss if it is incurred by a corporation that was either of the following:
(A) Under the jurisdiction of the court in a Title 11 or similar case at any time prior to January 1, 1994. The loss carryover provided in the preceding sentence shall not apply to any loss incurred in an income year after the taxable year during which the corporation is no longer under the jurisdiction of the court in a Title 11 or similar case.
(B) In receipt of assets acquired in a transaction that qualifies as a tax-free reorganization under Section 368(a)(1)(G) of the Internal Revenue Code.
(f) For purposes of this section:
(1) “Eligible small business” means any trade or business that has gross receipts, less returns and allowances, of less than one million dollars ($1,000,000) during the income year.
(2) Except as provided in subdivision (g), “new business” means any trade or business activity that is first commenced in this state on or after January 1, 1994.
(3) “Title 11 or similar case” shall have the same meaning as in Section 368(a)(3) of the Internal Revenue Code.
(4) In the case of any trade or business activity conducted by a partnership or an “S” corporation, paragraphs (1) and (2) shall be applied to the partnership or “S” corporation.
(g) For purposes of this section, in determining whether a trade or business activity qualifies as a new business under paragraph (2) of subdivision (e), the following rules shall apply:
(1) In any case where a taxpayer purchases or otherwise acquires all or any portion of the assets of an existing trade or business (irrespective of the form of entity) that is doing business in this state (within the meaning of Section 23101), the trade or business thereafter conducted by the taxpayer (or any related person) shall not be treated as a new business if the aggregate fair market value of the acquired assets (including real, personal, tangible, and intangible property) used by the taxpayer (or any related person) in the conduct of its trade or business exceeds 20 percent of the aggregate fair market value of the total assets of the trade or business being conducted by the taxpayer (or any related person). For purposes of this paragraph only, the following rules shall apply:
(A) The determination of the relative fair market values of the acquired assets and the total assets shall be made as of the last day of the first taxable year in which the taxpayer (or any related person) first uses any of the acquired trade or business assets in its business activity.
(B) Any acquired assets that constituted property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the transferor shall not be treated as assets acquired from an existing trade or business, unless those assets also constitute property described in Section 1221(a)(1) of the Internal Revenue Code in the hands of the acquiring taxpayer (or related person).
(2) In any case where a taxpayer (or any related person) is engaged in one or more trade or business activities in this state, or has been engaged in one or more trade or business activities in this state within the preceding 36 months (“prior trade or business activity”), and thereafter commences an additional trade or business activity in this state, the additional trade or business activity shall only be treated as a new business if the additional trade or business activity is classified under a different division of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, than are any of the taxpayer’s (or any related person’s) current or prior trade or business activities.
(3) In a case in which a taxpayer, including all related persons, is engaged in trade or business activities wholly outside of this state and the taxpayer first commences doing business in this state (within the meaning of Section 23101) after December 31, 1993 (other than by purchase or other acquisition described in paragraph (1)), the trade or business activity shall be treated as a new business under paragraph (2) of subdivision (e).
(4) In a case in which the legal form under which a trade or business activity is being conducted is changed, the change in form shall be disregarded and the determination of whether the trade or business activity is a new business shall be made by treating the taxpayer as having purchased or otherwise acquired all or any portion of the assets of an existing trade or business under the rules of paragraph (1).
(5) “Related person” shall mean any person that is related to the taxpayer under either Section 267 or 318 of the Internal Revenue Code.
(6) “Acquire” shall include any transfer, whether or not for consideration.
(7) (A) For taxable years beginning on or after January 1, 1997, the term “new business” shall include any taxpayer that is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition, and as further amended, and that has not received regulatory approval for any product from the Food and Drug Administration.
(B) For purposes of this paragraph:
(i) “Biopharmaceutical 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.
(ii) “Other biotechnology activities” means activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.
(h) For purposes of corporations whose net income is determined under Chapter 17 (commencing with Section 25101), Section 25108 applies to each of the following:
(1) The amount of net operating loss incurred in any taxable year that may be carried forward to another taxable year.
(2) The amount of any loss carry forward that may be deducted in any taxable year.
(i) The Franchise Tax Board may prescribe appropriate regulations to carry out the purposes of this section, including any regulations necessary to prevent the avoidance of the purposes of this section through splitups, shell corporations, partnerships, tiered ownership structures, or otherwise.
(j) The Franchise Tax Board may reclassify any net operating loss carryover determined under either paragraph (2) or (3) of subdivision (b) as a net operating loss carryover under paragraph (1) of subdivision (b) upon a showing that the reclassification is necessary to prevent evasion of the purposes of this section.
(k) Except as otherwise provided, the amendments made by Chapter 107 of the Statutes of 2000 apply to net operating losses for taxable years beginning on or after January 1, 2000.
SEC. 37.
Section 24416.1 of the Revenue and Taxation Code is amended to read:24416.1.
(a) A qualified taxpayer, as defined in Section 24416.4 or 24416.7, or Section 24416.2, 24416.5, or 24416.6, as those sections read on November 30, 2014, may elect to take the deduction provided by Section 172 of the Internal Revenue Code, relating to the net operating loss deduction, as modified by Section 24416, in computing net income under Section 24341, with the following exceptions to Section 24416:(1) Subdivision (a) of Section 24416, relating to years in which allowable losses are sustained, shall not be applicable.
(2) Subdivision (b) of Section 24416, relating to the 50-percent reduction of losses, shall not be applicable.
(3) The provisions of subparagraphs (B) and (C) of Section 172(b)(1) of the Internal Revenue Code, relating to years to which loss may be carried, shall not apply. To the extent applicable to California law, net operating losses attributable to entities with losses described by Section 172(b)(1)(J) shall be applied in accordance with Section 172(b)(1)(A) and (B) of the Internal Revenue Code.
(b) Corporations whose income is subject to the provisions of Section 25101 or 25101.15 shall make the computations required by Section 25108.
(c) The election to compute the net operating loss under this section shall be made in a statement attached to the original return, timely filed for the year in which the net operating loss is incurred and shall be irrevocable. In addition to the exceptions specified in subdivision (a), Section 24416.4 or 24416.7, as appropriate, or Section 24416.2, 24416.5, or 24416.6, as those sections read on November 30, 2014, as appropriate, shall be applicable.
(d) Any carryover of a net operating loss sustained by a qualified taxpayer, as defined in subdivision (a) or (b) of Section 24416.2 as that section read immediately prior to January 1, 1997, shall, if previously elected, continue to be a deduction, as provided in subdivision (a), applied as if the provisions of subdivision (a) or (b) of Section 24416.2, as that section read prior to January 1, 1997, still applied.
SEC. 38.
Section 24416.3 of the Revenue and Taxation Code is amended to read:24416.3.
(a) Notwithstanding Sections 24416, 24416.1, 24416.4, and 24416.7, or Sections 24416.2, 24416.5, and 24416.6, as those sections read on November 30, 2014, and Section 172 of the Internal Revenue Code, relating to net operating loss deduction, no net operating loss deduction shall be allowed for any taxable year beginning on or after January 1, 2002, and before January 1, 2004.(b) For any 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, relating to net operating loss deduction, shall be extended as follows:
(1) By one year, for losses incurred in taxable years beginning on or after January 1, 2002, and before January 1, 2003.
(2) By two years, for losses incurred in taxable years beginning before January 1, 2002.
SEC. 39.
Section 24416.4 of the Revenue and Taxation Code is amended to read:24416.4.
(a) The term “qualified taxpayer” as used in Section 24416.1 includes a corporation engaged in the conduct of a trade or business within the Los Angeles Revitalization Zone designated pursuant to Section 7102 of the Government Code. For purposes of this subdivision, all of the following shall apply:(1) A net operating loss shall not be a net operating loss carryback for any taxable year and, except as provided in subparagraph (B), a net operating loss for any taxable year beginning on or after the date the area in which the taxpayer conducts a trade or business is designated the Los Angeles Revitalization Zone shall be a net operating loss carryover to each following taxable year that ends before the Los Angeles Revitalization Zone expiration date or to each of the 15 taxable years following the taxable year of loss, if longer.
(2) In the case of a financial institution to which Section 585, 586, or 593 of the Internal Revenue Code applies, a net operating loss for any taxable year beginning on or after January 1, 1984, shall be a net operating loss carryover to each of the five years following the taxable year of the loss. Subdivision (b) of Section 24416.1 shall not apply.
(3) “Net operating loss” means the loss determined under Section 172 of the Internal Revenue Code, relating to net operating loss deduction, as modified by Section 24416.1, attributable to the taxpayer’s business activities within the Los Angeles Revitalization Zone (as defined in Section 7102 of the Government Code) prior to the Los Angeles Revitalization Zone expiration date. The attributable loss shall be determined in accordance with Chapter 17 (commencing with Section 25101) of Part 11, modified as follows:
(A) The loss shall be apportioned to the Los Angeles Revitalization Zone by multiplying the loss from the business by a fraction, the numerator of which is the property factor plus the payroll factor, and the denominator of which is 2.
(B) “The Los Angeles Revitalization Zone” shall be substituted for “this state.”
(4) A net operating loss carryover shall be a deduction only with respect to the taxpayer’s business income attributable to the Los Angeles Revitalization Zone (as defined in Section 7102 of the Government Code) determined in accordance with subdivision (c).
(5) If a loss carryover is allowable pursuant to this section for any taxable year after the Los Angeles Revitalization Zone designation has expired, the Los Angeles Revitalization Zone shall be deemed to remain in existence for purposes of computing the limitation set forth in paragraph (2) and allowing a net operating loss deduction.
(6) Attributable income shall be that portion of the taxpayer’s California source business income which is apportioned to the Los Angeles Revitalization Zone. For that purpose, the taxpayer’s business income attributable to sources in this state first shall be determined in accordance with Chapter 17 (commencing with Section 25101). That business income shall be further apportioned to the Los Angeles Revitalization Zone in accordance with Article 2 (commencing with Section 25120) of Chapter 17, modified as follows:
(A) Business income shall be apportioned to the Los Angeles Revitalization Zone by multiplying total California business income of the taxpayer by a fraction, the numerator of which is the property factor plus the payroll factor, and the denominator of which is 2.
(B) The property factor is a fraction, the numerator of which is the average value of the taxpayer’s real and tangible personal property owned or rented and used in the Los Angeles Revitalization Zone during the taxable year and the denominator of which is the average value of all the taxpayer’s real and tangible personal property owned or rented and used in this state during the taxable year.
(C) The payroll factor is a fraction, the numerator of which is the total amount paid by the taxpayer in the Los Angeles Revitalization Zone during the taxable year for compensation, and the denominator of which is the total compensation paid by the taxpayer in this state during the taxable year.
(7) “Los Angeles Revitalization Zone expiration date” means the date the Los Angeles Revitalization Zone designation expires, is repealed, or becomes inoperative pursuant to Section 7102, 7103, or 7104 of the Government Code.
(b) This section shall be inoperative on the first day of the taxable year beginning on or after the determination date, and each taxable year thereafter, with respect to the taxpayer’s business activities within a geographic area that is excluded from the map pursuant to Section 7102 of the Government Code, or an excluded area determined pursuant to Section 7104 of the Government Code. The determination date is the earlier of the first effective date of a determination under subdivision (c) of Section 7102 of the Government Code occurring after December 1, 1994, or the first effective date of an exclusion of an area from the amended Los Angeles Revitalization Zone under Section 7104 of the Government Code. However, if the taxpayer has any unused loss amount as of the date this section becomes inoperative, that unused loss amount may continue to be carried forward as provided in this section.
(c) A taxpayer who qualifies as a “qualified taxpayer” under one or more sections shall, for the taxable year of the net operating loss and any taxable year to which that net operating loss may be carried, designate on the original return filed for each year the section that applies to that taxpayer with respect to that net operating loss. If the taxpayer is eligible to qualify under more than one section, the designation is to be made after taking into account subdivision (d).
(d) If a taxpayer is eligible to qualify under this section and either Section 24416.2, 24416.5, or 24416.6, as those sections read on November 30, 2014, as a “qualified taxpayer,” with respect to a net operating loss in a taxable year, the taxpayer shall designate which section is to apply to the taxpayer.
(e) Notwithstanding Section 24416, the amount of the loss determined under this section or Section 24416.2, 24416.5, or 24416.6, as those sections read on November 30, 2014, shall be the only net operating loss allowed to be carried over from that taxable year and the designation under subdivision (c) shall be included in the election under Section 24416.1.
(f) This section shall cease to be operative on December 1, 1998. However, any unused net operating loss may continue to be carried over to following years as provided in this section.
SEC. 40.
Section 24416.7 of the Revenue and Taxation Code is amended to read:24416.7.
(a) The term “qualified taxpayer” as used in Section 24416.1 includes a corporation that conducts a farming business that is directly affected by Pierce’s disease and its vectors. For purposes of this subdivision, all of the following shall apply:(1) A net operating loss shall not be a net operating loss carryback to any taxable year, and a net operating loss for any taxable year beginning on or after the date that the area in which the taxpayer conducts a farming business is affected by Pierce’s disease and its vectors shall be a net operating loss carryover to each of the nine taxable years following the taxable year of loss, until used.
(2) For purposes of this subdivision:
(A) “Net operating loss” means the loss determined under Section 172 of the Internal Revenue Code, relating to net operating loss deduction, as modified by Section 24416.1, attributable to the taxpayer’s farming business activities affected by Pierce’s disease and its vectors. That attributable loss shall be determined in accordance with Chapter 17 (commencing with Section 25101) of Part 11, modified for purposes of this subdivision, as follows:
(i) A loss shall be apportioned to the area affected by Pierce’s disease and its vectors by multiplying the total loss from the farming business by a fraction, the numerator of which is the property factor plus the payroll factor, and the denominator of which is two.
(ii) “The area affected by Pierce’s disease and its vectors” shall be substituted for “this state.”
(B) A net operating loss carryover computed under this section shall be allowed as a deduction only with respect to the taxpayer’s farming business income attributable to the area affected by Pierce’s disease and its vectors.
(C) Attributable income is that portion of the taxpayer’s California source farming business income that is apportioned to the area affected by Pierce’s disease and its vectors. For that purpose, that taxpayer’s farming business income attributable to sources in this state first shall be determined in accordance with Chapter 17 (commencing with Section 25101) of Part 11. That farming business income shall be further apportioned to the area affected by Pierce’s disease and its vectors in accordance with Article 2 (commencing with Section 25120) of Chapter 17 of Part 11, modified for purposes of this subdivision as follows:
(i) Farming business income shall be apportioned to the area affected by Pierce’s disease and its vectors by multiplying the total California farming business income of the taxpayer by a fraction, the numerator of which is the property factor plus the payroll factor, and the denominator of which is two. For purposes of this paragraph:
(I) The property factor is a fraction, the numerator of which is the average value of the taxpayer’s real and tangible personal property owned or rented and used in the area affected by Pierce’s disease and its vectors during the taxable year, and the denominator of which is the average value of all the taxpayer’s real and tangible personal property owned or rented and used in this state during the taxable year.
(II) The payroll factor is a fraction, the numerator of which is the total amount paid by the taxpayer in the area affected by Pierce’s disease and its vectors during the taxable year for compensation, and the denominator of which is the total compensation paid by the taxpayer in this state during the taxable year.
(ii) If a loss carryover is allowable pursuant to this section for any taxable year after Pierce’s disease and its vectors occurred, the area affected by Pierce’s disease and its vectors shall be deemed to remain in existence for purposes of computing the limitation set forth in subparagraph (B) and allowing a net operating loss deduction.
(b) A taxpayer who qualifies as a “qualified taxpayer” under one or more sections shall, for the taxable year of the net operating loss and any taxable year to which that net operating loss may be carried, designate on the original return filed for each year the section that applies to that taxpayer with respect to that net operating loss. If the taxpayer is eligible to qualify under more than one section, the designation is to be made after taking into account subdivision (c).
(c) If a taxpayer is eligible to compute its net operating loss under this section and either Section 24416.4, or Section 24416.2, 24416.5, or 24416.6, as those sections read on November 30, 2014, as a “qualified taxpayer,” with respect to a net operating loss in a taxable year, the taxpayer shall designate which section is to apply to the taxpayer.
(d) Notwithstanding Section 24416, the amount of the loss determined under this section, Section 24416.4, or Section 24416.2, 24416.5, or 24416.6, as those sections read on November 30, 2014, shall be the only net operating loss allowed to be carried over from that taxable year and the designation under subdivision (b) shall be included in the election under Section 24416.1.
(e) (1) A qualified taxpayer may utilize the net operating loss carryover allowed by this section only if the Department of Food and Agriculture determines that Pierce’s disease and its vectors caused the net operating loss for which the qualified taxpayer seeks a deduction under this section.
(2) To make the determination required by this subdivision, the Department of Food and Agriculture shall utilize the definitions in Title 3 of the California Code of Regulations, relating to Pierce’s disease and its vectors.
(3) The Department of Food and Agriculture may prescribe regulations necessary to implement this subdivision.
(f) This section applies to net operating losses attributable to taxable years beginning on or after January 1, 2001, and before January 1, 2003.
SEC. 41.
Section 24416.21 of the Revenue and Taxation Code is amended to read:24416.21.
(a) Notwithstanding Sections 24416, 24416.1, 24416.4, and 24416.7, Sections 24416.2, 24416.5, and 24416.6, as those sections read on November 30, 2014, and Section 172 of the Internal Revenue Code, relating to net operating loss deduction, no net operating loss deduction shall be allowed for any taxable year beginning on or after January 1, 2008, and before January 1, 2012.(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, relating to net operating loss deduction, shall be extended as follows:
(1) By one year, for losses incurred in taxable years beginning on or after January 1, 2010, and before January 1, 2011.
(2) By two years, for losses incurred in taxable years beginning on or after January 1, 2009, and before January 1, 2010.
(3) By three years, for losses incurred in taxable years beginning on or after January 1, 2008, and before January 1, 2009.
(4) By four years, for losses incurred in taxable years beginning before January 1, 2008.
(c) Notwithstanding subdivision (a), a net operating loss deduction shall be allowed for carryback of a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2019.
(d) The disallowance of any net operating loss deduction for any taxable year beginning on or after January 1, 2008, and before January 1, 2010, pursuant to subdivision (a) shall not apply to a taxpayer with income subject to tax under this part of less than five hundred thousand dollars ($500,000) for the taxable year.
(e) (1) The disallowance of any net operating loss deduction for any taxable year beginning on or after January 1, 2010, and before January 1, 2012, pursuant to subdivision (a) shall not apply to a taxpayer with preapportioned income of less than three hundred thousand dollars ($300,000) for the taxable year.
(2) For purposes of this subdivision, “preapportioned income” means net income after state adjustments, before the application of the apportionment and allocation provisions of this part.
(3) For taxpayers that are required to be included in a combined report under Section 25101 or authorized to be included in a combined report under Section 25101.15, the amount prescribed in paragraph (1) shall apply to the aggregate amount of preapportioned income for all members included in a combined report.
(f) Notwithstanding subdivision (a), this section shall not apply to a taxpayer that ceased to do business or has a final taxable year ending prior to August 28, 2008, that sold or transferred substantially all of its assets resulting in a gain on sale during a taxable year ending prior to August 28, 2008, for which the gain could be offset with existing net operating loss deductions and the sale or transfer occurred pursuant to a plan of reorganization under Chapter 11 of Title 11 of the United States Code. An amended tax return claiming net operating loss deductions allowed pursuant to this subdivision shall be treated as a timely filed original return.
(g) The Legislature finds and declares that the addition of subdivision (f) to this section by the act adding this subdivision fulfills a statewide public purpose by providing necessary tax relief for a taxpayer that ceased to do business or has a final taxable year ending prior to August 28, 2008, that sold or transferred substantially all of its assets resulting in a gain or sale during a taxable year prior to August 28, 2008, for which the gain could be offset with existing net operating loss deductions and the sale or transfer occurred pursuant to a plan of reorganization under Chapter 11 of Title 11 of the United States Code, in order to ensure that these taxpayers are not permanently denied the net operating loss deduction.
SEC. 42.
Section 24416.22 of the Revenue and Taxation Code is amended to read:24416.22.
Notwithstanding Section 24416.1, 24416.4, or 22416.7, or Section 24416.2, 24416.5, or 24416.6, as those sections read on November 30, 2014, to the contrary, a net operating loss attributable to a taxable year beginning on or after January 1, 2008, shall be a net operating carryover to each of the 20 taxable years following the year of the loss, and a net operating loss attributable to a taxable year beginning on or after January 1, 2013, and before January 1, 2019, shall also be a net operating loss carryback to each of the two taxable years preceding the taxable year of loss.SEC. 43.
Section 24452 of the Revenue and Taxation Code is amended to read:24452.
Section 301(e)(2) of the Internal Revenue Code, relating to 20 percent corporate shareholders, is modified to refer to Section 24402 in lieu of Sections 243 and 245 of the Internal Revenue Code.SEC. 44.
Section 24956 of the Revenue and Taxation Code is repealed.SEC. 45.
Section 25110 of the Revenue and Taxation Code is amended to read:25110.
(a) Notwithstanding Section 25101, a qualified taxpayer, as defined in paragraph (2) of subdivision (b), that is subject to the tax imposed under this part, may elect to determine its income derived from or attributable to sources within this state pursuant to a water’s-edge election in accordance with the provisions of this part, as modified by this article. A taxpayer, that makes a water’s-edge election on or after January 1, 2006, shall take into account that portion of its own income and apportionment factors and the income and apportionment factors of its affiliated entities to the extent provided below:(1) The entire income and apportionment factors of any of the following corporations:
(A) Domestic international sales corporations, as described in Sections 991 to 994, inclusive, of the Internal Revenue Code.
(B) Any corporation (other than a bank), regardless of the place where it is incorporated if the average of its property, payroll, and sales factors within the United States is 20 percent or more.
(C) Corporations that are incorporated in the United States, excluding corporations making an election pursuant to Sections 931 to 934, inclusive, of the Internal Revenue Code.
(D) Export trade corporations, as described in Sections 970 and 971 of the Internal Revenue Code.
(2) (A) With respect to a corporation that is not described in subparagraphs (A), (B), (C), and (D) of paragraph (1), as provided in either one or both of the following clauses:
(i) The income and apportionment factors of that corporation to the extent of its income derived from or attributable to sources within the United States and its factors assignable to a location within the United States in accordance with paragraph (3) of subdivision (b). Income of that corporation derived from or attributable to sources within the United States as determined by federal income tax laws shall be limited to, and determined from, the books of account maintained by the corporation with respect to its activities conducted within the United States.
(ii) The income and apportionment factors of that corporation that is a “controlled foreign corporation,” as defined in Section 957 of the Internal Revenue Code, relating to controlled foreign corporations; United States persons, to the extent determined by multiplying the income and apportionment factors of that corporation without application of this subparagraph by a fraction not to exceed one, the numerator of which is the “Subpart F income” of that corporation for that taxable year and the denominator of which is the “earnings and profits” of that corporation for that taxable year.
(B) For purposes of this paragraph, both of the following apply:
(i) “Subpart F income” means “Subpart F income” as defined in Section 952 of the Internal Revenue Code.
(ii) “Earnings and profits” means “earnings and profits” as described in Section 964 of the Internal Revenue Code, relating to miscellaneous provisions.
(3) The income and apportionment factors of the corporations described in this subdivision shall be taken into account only to the extent that they would have been taken into account had no election under this section been made.
(4) The Franchise Tax Board shall prescribe regulations to coordinate implementation of subparagraph (A) of paragraph (2) to prevent multiple inclusion or exclusion of income and factors in situations where the same item of income is described in both clauses.
(b) For purposes of this article and Section 24411, all of the following definitions apply:
(1) An “affiliated corporation” means a corporation that is a member of a commonly controlled group as defined in Section 25105.
(2) A “qualified taxpayer” means a corporation that does both of the following:
(A) Files with the state tax return, on which the water’s-edge election is made, a consent to the taking of depositions, at the time and place most reasonably convenient to all parties, from key domestic corporate individuals and to the acceptance of subpoenas duces tecum requiring reasonable production of documents to the Franchise Tax Board, as provided in Section 19504, by the Office of Tax Appeals, as provided in Division 4.1 (commencing with Section 30000) of Title 18 of the California Code of Regulations, or by the courts of this state, as provided in Chapter 2 (commencing with Section 1985) of Title 3 of Part 4 of, and Chapter 9 (commencing with Section 2025.010) of Title 4 of Part 4 of, the Code of Civil Procedure. The consent relates to issues of jurisdiction and service and does not waive any defenses that a taxpayer may otherwise have. The consent shall remain in effect as long as the water’s-edge election is in effect, and shall be limited to providing that information necessary to review or adjust income or deductions in a manner authorized by Section 482, 861, Subpart F of Part III of Subchapter N, or similar provisions, of the Internal Revenue Code, together with the regulations adopted pursuant to those provisions, and for the conduct of an investigation with respect to any unitary business in which the taxpayer may be involved.
(B) Agrees that, for purposes of this article, dividends received by any corporation whose income and apportionment factors are taken into account pursuant to subdivision (a) from either of the following are functionally related dividends and shall be presumed to be business income:
(i) A corporation of which more than 50 percent of the voting stock is owned, directly or indirectly, by members of the unitary group and which is engaged in the same general line of business.
(ii) Any corporation that is either a significant source of supply for the unitary business or a significant purchaser of the output of the unitary business, or that sells a significant part of its output or obtains a significant part of its raw materials or input from the unitary business. “Significant,” as used in this subparagraph, means an amount of 15 percent or more of either input or output.
All other dividends shall be classified as business or nonbusiness income without regard to this subparagraph.
(3) The definitions and locations of property, payroll, and sales shall be determined under the laws and regulations that set forth the apportionment formulas used by the individual states to assign net income subject to taxes on, or measured by, net income in that state. If a state does not impose a tax on, or measured by, net income or does not have laws or regulations with respect to the assignment of property, payroll, and sales, the laws and regulations provided in Article 2 (commencing with Section 25120) shall apply.
Sales shall be considered to be made to a state only if the corporation making the sale may otherwise be subject to a tax on, or measured by, net income under the Constitution or laws of the United States, and shall not include sales made to a corporation whose income and apportionment factors are taken into account pursuant to subdivision (a) in determining the amount of income of the taxpayer derived from or attributable to sources within this state.
(4) “The United States” means the 50 states of the United States and the District of Columbia.
(c) All references in this part to income determined pursuant to Section 25101 shall also mean income determined pursuant to this section.
SEC. 46.
Except as otherwise provided, the provisions of this act shall apply to taxable years beginning on or after January 1, 2025.SEC. 47.
Sections 101 to 106, inclusive, and Section 109 (Title I of Division U of Public Law 115-141), Sections 201 to 206, inclusive (Title II of Division U of Public Law 115-141), Sections 301 and 302 (Title III of Division U of Public Law 115-141), and Section 401 (Title IV of Division U of Public Law 115-141) of the Tax Technical Corrections Act of 2018 enacted numerous technical corrections and clarifications to provisions of the Internal Revenue Code, including technical corrections and clarifications relating to the Consolidated Appropriations Act, 2016 (Public Law 114-113), the Continuing Appropriations Act, 2016 (Public Law 114-53), the Fixing America’s Surface Transportation Act (Public Law 114-94), the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (Public Law 114-41), the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (Public Law 113-295), the American Taxpayer Relief Act of 2012 (Public Law 112-240), American Jobs Creation Act of 2004 (Public Law 108-357), Bipartisan Budget Act of 2015 (Public Law 114-74), Energy Policy Act of 2005 (Public Law 109-58), and the Clerical Corrections and Deadwood-related provisions, some of which are incorporated by reference into Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), and Part 11 (commencing with Section 23001) of Division 2 of the Revenue and Taxation Code. Unless otherwise provided, the technical corrections described in the preceding sentence, to the extent that they correct provisions that are incorporated by reference into the Revenue and Taxation Code, are declaratory of existing law and shall be applied in the same manner and for the same periods as specified for federal purposes, or if later, the specified date of incorporation.SEC. 48.
This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.Text of SB 1435 as chaptered, from the official record. Connect Plus keeps every version and highlights what changed.Compare versions