Bill Text: CA AB1576 | 2023-2024 | Regular Session | Amended
Bill Title: Personal Income Tax Law: Corporation Tax Law: disregarded entities: credit limitation.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Failed) 2024-02-01 - From committee: Filed with the Chief Clerk pursuant to Joint Rule 56. [AB1576 Detail]
Download: California-2023-AB1576-Amended.html
|
Amended
IN
Assembly
April 26, 2023 |
CALIFORNIA LEGISLATURE—
2023–2024 REGULAR SESSION
Assembly Bill
No. 1576
| Introduced by Assembly Member Wallis |
February 17, 2023 |
An act to amend Sections 17039 and 23036 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 1576, as amended, Wallis.
Personal Income Tax Law: Corporation Tax Law: disregarded entities: credit limitation.
The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws, and specify certain limitations and requirements with respect to the application of credits, including limitations on credits allowed with respect to disregarded entities in excess of the tax imposed on income related to those disregarded entities.
This bill would make remove the above-described limitation on credits allowed with respect to disregarded entities applicable only to taxable years beginning before January 1, 2023, thereby removing that limitation for taxable years beginning on or after January 1, 2023.
for credits generated in taxable years beginning on or after January 1, 2023, if the credit can be assigned, as provided.
This bill would take effect immediately as a tax levy.
Digest Key
Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NOBill Text
The people of the State of California do enact as follows:
SECTION 1.
Section 17039 of the Revenue and Taxation Code is amended to read:17039.
(a) Notwithstanding any provision in this part to the contrary, for the purposes of computing tax credits, the term “net tax” means the tax imposed under either Section 17041 or 17048 plus the tax imposed under Section 17504 (relating to lump-sum distributions) less the credits allowed by Section 17054 (relating to personal exemption credits) and any amount imposed under paragraph (1) of subdivision (d) and paragraph (1) of subdivision (e) of Section 17560. Notwithstanding the preceding sentence, the “net tax” shall not be less than the tax imposed under Section 17504 (relating to the separate tax on lump-sum distributions), if any. Credits shall be allowed against “net tax” in the following order:(1) Credits that do not contain carryover or refundable provisions, except those described in paragraphs (4) and (5).
(2) Credits that contain carryover provisions but do not contain refundable provisions, except for those that are allowed to reduce “net tax” below the tentative minimum tax, as defined by Section 17062.
(3) Credits that contain both carryover and refundable provisions.
(4) The minimum tax credit allowed by Section 17063 (relating to the alternative minimum tax).
(5) (A) For taxable years beginning on or after January 1, 2002, and before January 1, 2022, credits that are allowed to reduce “net tax” below the
tentative minimum tax, as defined by Section 17062.
(B) For taxable years beginning on or after January 1, 2022, credits that are allowed to reduce “net tax” below the tentative minimum tax, as defined by Section 17062, except the credit described in paragraph (7).
(6) Credits for taxes paid to other states allowed by Chapter 12 (commencing with Section 18001).
(7) For taxable years beginning on or after January 1, 2022, the credit allowed by Section 17052.10 (relating to the elective tax under the Small Business Relief Act).
(8) Credits that contain refundable provisions but do not contain carryover provisions.
The
order within each paragraph shall be determined by the Franchise Tax Board.
(b) Notwithstanding the provisions of Sections 17061 (relating to refunds pursuant to the Unemployment Insurance Code) and
19002 (relating to tax withholding), the credits provided in those sections shall be allowed in the order provided in paragraph (6) of subdivision (a).
(c) (1) Notwithstanding any other provision of this part, no tax credit shall reduce the tax imposed under Section 17041 or 17048 plus the tax imposed under Section 17504 (relating to the separate tax on lump-sum distributions) below the tentative minimum tax, as defined by Section 17062, except the following credits:
(A) The credit allowed by former Section 17052.2 (relating to teacher retention tax credit, repealed on August 24, 2007).
(B) The credit allowed by former Section 17052.4 (relating to solar energy, repealed on December 1, 1989).
(C) The credit allowed by former Section 17052.5 (relating to solar energy, repealed on January 1, 1987).
(D) The credit allowed by former Section 17052.5 (relating to solar energy, repealed on December 1, 1994).
(E) The credit allowed by Section 17052.12 (relating to research expenses).
(F) The credit allowed by former Section 17052.13 (relating to sales and use tax credit, repealed on January 1, 1997).
(G) The credit allowed by former Section 17052.15 (relating to Los Angeles Revitalization Zone sales tax credit, repealed on December 1, 1998).
(H) The credit allowed by Section 17052.25 (relating to the adoption costs credit).
(I) The credit allowed by Section 17053.5 (relating to the renter’s credit).
(J) The credit allowed by former Section 17053.8 (relating to enterprise zone hiring credit, repealed on October 3, 1997).
(K) The credit allowed by former Section 17053.10 (relating to Los Angeles Revitalization Zone hiring credit, repealed on December 1, 1998).
(L) The credit allowed by former Section 17053.11 (relating to program area hiring credit, repealed on January 1, 1997).
(M) For each taxable year beginning on or after
January 1, 1994, the credit allowed by former Section 17053.17 (relating to Los Angeles Revitalization Zone hiring credit, repealed on December 1, 1998).
(N) The credit allowed by former Section 17053.33 (relating to
targeted tax area sales or use tax credit, repealed on December 1, 2015).
(O) The credit allowed by former Section 17053.34 (relating to targeted tax area hiring credit, repealed on December 1, 2019).
(P) The credit allowed by former Section 17053.49 (relating to qualified property, repealed on January 1, 2004).
(Q) The credit allowed by former Section 17053.70 (relating to enterprise zone sales or use tax credit, repealed on December 1, 2015).
(R) The credit allowed by former Section 17053.74 (relating to enterprise zone hiring credit, repealed on December 1, 2019).
(S) The credit allowed by
Section 17054 (relating to credits for personal exemption).
(T) The credit allowed by Section 17054.5 (relating to the credits for a qualified joint custody head of household and a qualified taxpayer with a dependent parent).
(U) The credit allowed by Section 17054.7 (relating to the credit for a senior head of household).
(V) The credit allowed by former Section 17057 (relating to clinical testing expenses, repealed on December 1, 1993).
(W) The credit allowed by Section 17058 (relating to low-income housing).
(X) For taxable years beginning on or after January 1, 2014, the credit allowed by
Section 17059.2 (relating to GO-Biz California Competes Credit).
(Y) The credit allowed by Section 17061 (relating to refunds pursuant to the Unemployment Insurance Code).
(Z) Credits for taxes paid to other states allowed by Chapter 12 (commencing with Section 18001).
(AA) The credit allowed by Section 19002 (relating to tax withholding).
(AB) For taxable years beginning on or after January 1, 2014, the credit allowed by former Section 17053.86 (relating to the College Access Tax Credit Fund, repealed on December 1, 2017).
(AC) For taxable years beginning on or after January 1, 2017, the credit
allowed by Section 17053.87 (relating to the College Access Tax Credit Fund).
(AD) For taxable years beginning on or after January 1, 2021, the credit allowed by Section 17052.10 (relating to the elective tax under the Small Business Relief Act).
(2) Any credit that is partially or totally denied under paragraph (1) shall be allowed to be carried over and applied to the net tax in succeeding taxable years, if the provisions relating to that credit include a provision to allow a carryover when that credit exceeds the net tax.
(d) Unless otherwise provided, any remaining carryover of a credit allowed by a section that has been repealed or made inoperative shall continue to be allowed to be carried over under the
provisions of that section as it read immediately before being repealed or becoming inoperative.
(e) (1) Unless otherwise provided, if two or more taxpayers (other than spouses) share in costs that would be eligible for a tax credit allowed under this part, each taxpayer shall be eligible to receive the tax credit in proportion to the taxpayer’s respective share of the costs paid or incurred.
(2) In the case of a partnership, the credit shall be allocated among the partners pursuant to a written partnership agreement in accordance with Section 704 of the Internal Revenue Code, relating to partner’s distributive share.
(3) In the case of spouses who file separate returns, the credit may be taken by
either or equally divided between them.
(f) Unless otherwise provided, in the case of a partnership, any credit allowed by this part shall be computed at the partnership level, and any limitation on the expenses qualifying for the credit or limitation upon the amount of the credit shall be applied to the partnership and to each partner.
(g) (1) Subject to paragraph (4), with respect to any taxpayer that directly or indirectly owns an interest in a business entity that is disregarded for tax purposes pursuant to Section 23038 and any regulations thereunder, the amount of any credit or credit carryforward allowable for any taxable year attributable to the disregarded business entity shall be limited in accordance with paragraphs (2) and (3).
(2) The amount of any credit otherwise allowed under this part, including any credit carryover from prior years, that may be applied to reduce the taxpayer’s “net tax,” as defined in subdivision (a), for the taxable year shall be limited to an amount equal to the
excess of the taxpayer’s regular tax (as defined in Section 17062), determined by including income attributable to the disregarded business entity that generated the credit or credit carryover, over the taxpayer’s regular tax (as defined in Section 17062), determined by excluding the income attributable to that disregarded business entity. A credit shall not be allowed if the taxpayer’s regular tax (as defined in Section 17062), determined by including the income attributable to the disregarded business entity, is less than the taxpayer’s regular tax (as defined in Section 17062), determined by excluding the income attributable to the disregarded business entity.
(3) If the amount of a credit allowed pursuant to the section establishing the credit exceeds the amount allowable under this subdivision in any taxable year, the excess
amount may be carried over to subsequent taxable years pursuant to subdivisions (c) and (d).
(4) This subdivision shall only apply for taxable years beginning before January 1, 2023. For credits generated in taxable years beginning on or after January 1, 2023, paragraphs (1) to (3), inclusive, of this subdivision shall not apply to a credit that may be assigned pursuant to Section 23663 in the taxable year the credit is generated.
(h) (1) Unless otherwise specifically provided, in the case of a taxpayer that is a partner or shareholder of an eligible pass-thru entity described in paragraph (2), any credit
passed through to the taxpayer in the taxpayer’s first taxable year beginning on or after the date the credit is no longer operative may be claimed by the taxpayer in that taxable year, notwithstanding the repeal of the statute authorizing the credit before the close of that taxable year.
(2) For purposes of this subdivision, “eligible pass-thru entity” means any partnership or “S” corporation that files its return on a fiscal year basis pursuant to Section 18566, and that is entitled to a credit pursuant to this part for the taxable year that begins during the last year the credit is operative.
(3) This subdivision applies to credits that become inoperative on or after January 1, 2002.
(i) The amendments made to this
section by
Section 6 of Chapter 3 of the Statutes of 2022 shall apply as follows:
(1) The amendments to subdivisions (a), (e), and (h) shall be operative for taxable years beginning on or after January 1, 2022.
(2) The amendments to subdivision (c) shall be operative for taxable years beginning on or after January 1, 2021.
SEC. 2.
Section 23036 of the Revenue and Taxation Code is amended to read:23036.
(a) (1) The term “tax” includes any of the following:(A) The tax imposed under Chapter 2 (commencing with Section 23101).
(B) The tax imposed under Chapter 3 (commencing with Section 23501).
(C) The tax on unrelated business taxable income, imposed under Section 23731.
(D) The tax on “S” corporations imposed under Section 23802.
(2) The term “tax” does not include any amount imposed under paragraph (1) of subdivision (e) of
Section 24667 or paragraph (2) of subdivision (f) of Section 24667.
(b) For purposes of Article 5 (commencing with Section 18661) of Chapter 2, Article 3 (commencing with Section 19031) of Chapter 4, Article 6 (commencing with Section 19101) of Chapter 4, and Chapter 7 (commencing with Section 19501) of Part 10.2, and for purposes of Sections 18601, 19001, and 19005, the term “tax” also includes all of the following:
(1) The tax on limited partnerships, imposed under Section 17935, the tax on limited liability companies, imposed under Section 17941, and the tax on registered limited liability partnerships and foreign limited liability partnerships imposed under Section 17948.
(2) The alternative minimum tax imposed
under Chapter 2.5 (commencing with Section 23400).
(3) The tax on built-in gains of “S” corporations, imposed under Section 23809.
(4) The tax on excess passive investment income of “S” corporations, imposed under Section 23811.
(c) Notwithstanding any other provision of this part, credits are allowed against the “tax” in the following order:
(1) Credits that do not contain carryover provisions.
(2) Credits that, when the credit exceeds the “tax,” allow the excess to be carried over to offset the “tax” in succeeding taxable years, except for those credits that are allowed to reduce the “tax” below
the tentative minimum tax, as defined by Section 23455. The order of credits within this paragraph shall be determined by the Franchise Tax Board.
(3) The minimum tax credit allowed by Section 23453.
(4) Credits that are allowed to reduce the “tax” below the tentative minimum tax, as defined by Section 23455.
(5) Credits for taxes withheld under Section 18662.
(d) Notwithstanding any other provision of this part, each of the following applies:
(1) A credit may not reduce the “tax” below the tentative minimum tax (as defined by paragraph (1) of subdivision (a) of Section 23455), except the following
credits:
(A) The credit allowed by former Section 23601 (relating to solar energy).
(B) The credit allowed by former Section 23601.4 (relating to solar energy).
(C) The credit allowed by former Section 23601.5 (relating to solar energy).
(D) The credit allowed by Section 23609 (relating to research expenditures).
(E) The credit allowed by former Section 23609.5 (relating to clinical testing expenses).
(F) The credit allowed by Section 23610.5 (relating to low-income housing).
(G) The credit allowed by former Section 23612 (relating to sales and use tax credit).
(H) The credit allowed by Section 23612.2 (relating to enterprise zone sales or use tax credit).
(I) The credit allowed by former Section 23612.6 (relating to Los Angeles Revitalization Zone sales tax credit).
(J) The credit allowed by former Section 23622 (relating to enterprise zone hiring credit).
(K) The credit allowed by Section 23622.7 (relating to enterprise zone hiring credit).
(L) The credit allowed by former Section 23623 (relating to program area hiring credit).
(M) The credit allowed by former Section 23623.5 (relating to Los Angeles Revitalization Zone hiring credit).
(N) The credit allowed by former Section 23625 (relating to Los Angeles Revitalization Zone hiring credit).
(O) The credit allowed by Section 23633 (relating to targeted tax area sales or use tax credit).
(P) The credit allowed by Section 23634 (relating to targeted tax area hiring credit).
(Q) The credit allowed by former Section 23649 (relating to qualified property).
(R) For taxable years beginning on or after January 1, 2011,
the credit allowed by Section 23685 (relating to qualified motion pictures).
(S) For taxable years beginning on or after January 1, 2014, the credit allowed by Section 23689 (relating to GO-Biz California Competes Credit).
(T) For taxable years beginning on or after January 1, 2016, the credit allowed by Section 23695 (relating to qualified motion pictures).
(U) For taxable years beginning on or after January 1, 2014, the credit allowed by Section 23686 (relating to the College Access Tax Credit Fund).
(V) For taxable years beginning on or after January 1, 2017, the credit allowed by Section 23687 (relating to the College Access Tax Credit
Fund).
(W) For taxable years beginning on or after January 1, 2020, and before January 1, 2026, the credit allowed by Section 23636 (relating to the new advanced strategic aircraft credit).
(2) A credit against the tax may not reduce the minimum franchise tax imposed under Chapter 2 (commencing with Section 23101).
(e) Any credit which is partially or totally denied under subdivision (d) is allowed to be carried over to reduce the “tax” in the following year, and succeeding years if necessary, if the provisions relating to that credit include a provision to allow a carryover of the unused portion of that credit.
(f) Unless otherwise provided, any remaining
carryover from a credit that has been repealed or made inoperative is allowed to be carried over under the provisions of that section as it read immediately prior to being repealed or becoming inoperative.
(g) Unless otherwise provided, if two or more taxpayers share in costs that would be eligible for a tax credit allowed under this part, each taxpayer is eligible to receive the tax credit in proportion to their respective share of the costs paid or incurred.
(h) Unless otherwise provided, in the case of an “S” corporation, any credit allowed by this part is computed at the “S” corporation level, and any limitation on the expenses qualifying for the credit or limitation upon the amount of the credit applies to the “S” corporation and to each shareholder.
(i) (1) Subject to paragraph (4), with respect to any taxpayer that directly or indirectly owns an interest in a business entity that is disregarded for tax purposes pursuant to Section 23038 and any regulations thereunder, the amount of any credit or credit carryforward allowable for any taxable year attributable to the disregarded business entity is limited in accordance with paragraphs (2) and (3).
(2) The amount of any credit otherwise allowed under this part, including any credit carryover from prior years, that may be applied to reduce the taxpayer’s “tax,” as defined in subdivision (a), for the taxable year is limited to an amount equal to the excess of the taxpayer’s regular tax (as defined in Section 23455), determined by including income attributable to the
disregarded business entity that generated the credit or credit carryover, over the taxpayer’s regular tax (as defined in Section 23455), determined by excluding the income attributable to that disregarded business entity. A credit is not allowed if the taxpayer’s regular tax (as defined in Section 23455), determined by including the income attributable to the disregarded business entity is less than the taxpayer’s regular tax (as defined in Section 23455), determined by excluding the income attributable to the disregarded business entity.
(3) If the amount of a credit allowed pursuant to the section establishing the credit exceeds the amount allowable under this subdivision in any taxable year, the excess amount may be carried over to subsequent taxable years pursuant to subdivisions (d), (e), and (f).
(4) This subdivision shall only apply for taxable years beginning before January 1, 2023. For credits generated in taxable years beginning on or after January 1, 2023, paragraphs (1) to (3), inclusive, of this subdivision shall not apply to a credit that may be assigned pursuant to Section 23663 in the taxable year the credit is generated.
(j) (1) Unless otherwise specifically provided, in the case of a taxpayer that is a partner or shareholder of an eligible pass-thru entity described in paragraph (2), any credit passed through to the taxpayer in the taxpayer’s first taxable year beginning on or after the date
the credit is no longer operative may be claimed by the taxpayer in that taxable year, notwithstanding the repeal of the statute authorizing the credit prior to the close of that taxable year.
(2) For purposes of this subdivision, “eligible pass-thru entity” means any partnership or “S” corporation that files its return on a fiscal year basis pursuant to Section 18566, and that is entitled to a credit pursuant to this part for the taxable year that begins during the last year a credit is operative.
(3) This subdivision applies to credits that become inoperative on or after the operative date of the act adding this subdivision.
