AB 91

Bill Subjects

Abstract

(1) The Personal Income Tax Law, beginning on or after January 1, 2015, in modified conformity with federal income tax laws, allows an earned income tax credit against personal income tax, and a payment from the Tax Relief and Refund Account for an allowable credit in excess of tax liability, to an eligible individual that is equal to that portion of the earned income tax credit allowed by federal law as determined by the earned income tax credit adjustment factor, as specified. The law provides that the amount of the credit is calculated as a percentage of the eligible individual's earned income and is phased out above a specified amount as income increases. The law deems, for each taxable year beginning on or after January 1, 2018, and before January 1, 2019, the California Consumer Price Index as the greater of 3.1% or the percentage change in the California Consumer Price Index for the recomputation of specified earned income amounts, phaseout amounts, and the amount of disqualified income that would disallow this credit. This bill, for taxable years beginning on or after January 1, 2019, and before January 1, 2020, would deem the California Consumer Price Index as the greater of 3.5% or the percentage change in the California Consumer Price Index for the recomputation of those specified amounts. The bill, for taxable years on and after January 1, 2019, would revise the calculation factors to increase the credit amount for specified taxpayers. The bill, for taxable years beginning on or after January 1, 2020, and until and including the taxable year in which the minimum wage is set at $15 per hour, would require specified, revised calculation factors to be recomputed annually in the same manner as the recomputation of income tax brackets for eligible individuals, but would require the Franchise Tax Board to recalculate the revised phaseout percentage in a manner that any eligible individual with an earned income of $30,000 per year would get credit equal to $0. This bill would allow a refundable young child tax credit against the taxes imposed under the Personal Income Tax Law, for each taxable year beginning on or after January 1, 2019, in an amount equal to $1,176 multiplied by the earned income tax credit adjustment factor, not to exceed $1,000 per each qualified taxpayer per taxable year. The bill would require amounts of this credit in excess of the qualified taxpayer's tax liability to be paid to the qualified taxpayer from the Tax Relief and Refund Account. Existing law establishes the continuously appropriated Tax Relief and Refund Account and provides that payments required to be made to taxpayers or other persons from the Personal Income Tax Fund are to be paid from that account, including any amount to be paid as an earned income tax credit in excess of any tax liabilities. By increasing the amount of the California Earned Income Tax Credit and allowing a refundable young child tax credit to be paid with funds from the Tax Relief and Refund Account, and thus, authorizing new payments from that account for additional amounts in excess of personal income tax liabilities, this bill would make an appropriation. (2) Existing federal law, the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act) , for taxable years beginning on or after January 1, 2014, encourages and assists individuals and families to save private funds for the purpose of supporting persons with disabilities to maintain their health, independence, and quality of life by excluding from gross income distributions used for qualified disability expenses by a beneficiary of a qualified ABLE program established and maintained by a state, as specified. Existing federal law, the Tax Cuts and Jobs Act, increases the amount of contributions allowed to an ABLE account, adds special rules for the increased contribution limit, and exempts from taxation distributions from a qualified tuition program, as defined, rolled into an ABLE account for taxable years beginning on or after December 31, 2017, and before January 1, 2026. Existing federal law, the Consolidated Appropriations Act, 2016 expanded the definitions of "qualified higher educational expenses" and "qualified ABLE program." Existing law, the Personal Income Tax Law and the Corporation Tax Law, for taxable years beginning on or after January 1, 2016, conforms to the exclusions from gross income provided under federal income tax law provisions relating to the ABLE Act, as those exclusions read prior to the federal Tax Cuts and Jobs Act and the Consolidated Appropriations Act, 2016. Existing law creates the California ABLE Act Board and requires the board to provide an annual listing of distributions to individuals that have an interest in an ABLE account to the Franchise Tax Board, as provided. This bill would conform state tax law to those changes relating to qualified ABLE accounts made by the Tax Cuts and Jobs Act and the Consolidated Appropriations Act, 2016. The bill would make a legislative finding and declaration that providing ABLE account beneficiaries the ability to contribute their own earnings to the ABLE account up to the federal poverty level and allowing Section 529 plan accounts to roll over to ABLE accounts eliminates differences in the qualification criteria for ABLE accounts under federal tax law and California tax law, and thus serves a public purpose and does not constitute a prohibited gift of public funds. (3) The Personal Income Tax Law provides an exclusion from gross income for the amount of student loan indebtedness repaid or canceled pursuant to a specified federal law. This bill would exclude from an individual's gross income the amount of student loan indebtedness discharged on or after December 31, 2011 due to the death or disability of the student, as provided. (4) The Personal Income Tax Law and the Corporation Tax Law, in modified conformity with federal income tax laws, allow various deductions from gross income in computing adjusted gross income under those laws, including a deduction, as trade or business expense, of the premiums paid pursuant to an assessment by the Federal Deposit Insurance Corporation. This bill would conform to the federal Tax Cuts and Jobs Act, by disallowing or limiting the amount specified taxpayers may deduct for these premiums depending on the amount of total consolidated assets, as defined, of the taxpayer. (5) The Personal Income Tax Law and the Corporation Tax Law, in modified conformity with federal income tax laws, allow a deduction from gross income in computing adjusted gross income of ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Existing law prohibits a deduction from being allowed with respect to any covered employee of a publicly held corporation if the amount of applicable employee remuneration exceeds $1,000,000. This bill would conform to the federal Tax Cuts and Jobs Act, by revising the definitions of covered employee and publicly held corporation to limit the amount those specified taxpayers may deduct for ordinary and necessary expenses. The bill would also disallow the performance-based compensation and commission exceptions with respect to the deduction limitation relating to covered employees. (6) The Personal Income Tax Law and the Corporation Tax Law allow net operating losses attributable to taxable years beginning on or after January 1, 2013, to be carrybacks to each of the preceding 2 taxable years, as provided. This bill would disallow the use of net operating loss carrybacks by individual and corporate taxpayers. (7) The federal Tax Cuts and Jobs Act allows a small business to use the cash method of accounting if its average annual gross receipts for the 3 taxable years ending with the prior taxable year do not exceed $25,000,000. The Personal Income Tax Law and the Corporation Tax Law allows a small business to use the cash method of accounting if its average annual gross receipts for the 3 taxable years ending with the prior taxable year do not exceed $5,000,000. This bill, for taxable years beginning on or after January 1, 2019, would conform the Personal Income Tax Law and the Corporation Tax Law to the increase to $25,000,000 made by the federal Tax Cuts and Jobs Act in the allowable amount of annual gross receipts of a small business allowed to use the cash method of accounting. The bill would allow a taxpayer to elect to have this conformity apply to taxable years beginning on or after January 1, 2018, and before January 1, 2019. (8) The federal Tax Cuts and Jobs Act exempts a corporation engaged in farming that has average annual gross receipts for the 3 taxable years ending with the prior taxable year not exceeding $25,000,000 from computing its taxable income by using the accrual method of accounting. The Personal Income Tax Law and the Corporation Tax Law exempt a corporation engaged in farming that has average annual gross receipts for the 3 taxable years ending with the prior taxable year not exceeding $5,000,000 from computing taxable income by using the accrual method of accounting. This bill, for taxable years beginning on or after January 1, 2019, would conform the Personal Income Tax Law and the Corporation Tax Law to the increase to $25,000,000 made by the Tax Cuts and Jobs Act in the amount of average annual gross receipts of a farming corporation that is exempt from using the accrual method of accounting. The bill would allow a taxpayer to elect to have this conformity apply to taxable years beginning on or after January 1, 2018, and before January 1, 2019. The bill would also make conforming changes related to suspense allowances, as provided. (9) The federal Tax Cuts and Jobs Act exempts a taxpayer with average annual gross receipts for the 3 taxable years ending with the prior taxable year of $25,000,000 or less from the provisions that preclude the deduction of certain direct and indirect costs and determine whether those property costs are inventory costs or are capitalized. The Personal Income Tax Law and the Corporation Tax Law exempts a taxpayer with average annual gross receipts for the 3 taxable years ending with the prior taxable year of $10,000,000 or less from the provisions that preclude the deduction of certain direct and indirect costs and determine whether those property costs are inventory costs or are capitalized. This bill, for taxable years beginning on or after January 1, 2019, would conform the Personal Income Tax Law and the Corporation Tax Law to the increase to $25,000,000 made by the Tax Cuts and Jobs Act in the amount of average annual gross receipts of a taxpayer exempt from those provisions precluding the deductibility of certain property costs and determining whether those costs are inventory costs or are capitalized. The bill would allow a taxpayer to elect to have this conformity apply to taxable years beginning on or after January 1, 2018, and before January 1, 2019. (10) The federal Tax Cuts and Jobs Act exempts a small business with average annual gross receipts for the 3 taxable years ending with the prior taxable year not exceeding $25,000,000 from the provisions that require a taxpayer to take inventories to clearly determine their income. The Personal Income Tax Law and the Corporation Tax Law conforms to the provisions of the Internal Revenue Code relating to the requirement that a taxpayer take inventories to clearly determine their income, but does not allow an exemption. This bill, for taxable years beginning on or after January 1, 2019, would conform the Personal Income Tax Law and the Corporation Tax Law to the exemption in the Tax Cuts and Jobs Act of a small business with average annual gross receipts for the 3 taxable years ending with the prior taxable year not exceeding $25,000,000 from the provisions that require a taxpayer to take inventories to clearly determine their income. The bill would allow a taxpayer to elect to have this conformity apply to taxable years beginning on or after January 1, 2018, and before January 1, 2019. (11) The federal Tax Cuts and Jobs Act exempts construction contracts entered into by a taxpayer with average annual gross receipts not exceeding $25,000,000 from the requirement that the taxable income from a long-term contract be determined by the percentage of completion method. The Personal Income Tax Law and the Corporation Tax Law exempts construction contracts entered into by a taxpayer with average annual gross receipts for the 3 taxable years ending with the prior taxable year not exceeding $10,000,000 from the requirement that the taxable income from a long-term contract be determined by the percentage of completion method. This bill would conform the Personal Income Tax Law and the Corporation Tax Law to the exemption in the Tax Cuts and Jobs Act of construction contracts entered into by a taxpayer with average annual gross receipts not exceeding $25,000,000 from the requirement that the taxable income from a long-term contract be determined by the percentage of completion method. This conformity would apply to contracts entered into on or after the effective date of this act, as provided, and would allow, where applicable, a taxpayer to elect to have the conformity apply to contracts entered into on or after January 1, 2018, and before the effective date of this act. (12) The Personal Income Tax Law generally allows a noncorporate taxpayer to deduct business losses from a pass through entity, like an "S" corporation. Under the federal Tax Cuts and Jobs Act, for taxable years beginning after December 31, 2017, and before January 1, 2026, excess business losses, as defined, of a noncorporate taxpayer are not allowed as a deduction and instead those losses must be carried forward and treated as a net operating loss in subsequent taxable years, as provided. This bill, for taxable years beginning after December 31, 2018, would provide modified conformity to the above-described limitation, including not conforming to the federal sunset date. (13) The Personal Income Tax Law conforms as of a specified date to federal income tax laws, January 1, 2015, and therefore allows for the termination of a partnership by the sale or exchange of 50% or more of the interest in a partnership within a 12-month period. The federal Tax Cuts and Jobs Act repealed that provision of federal income tax law for taxable years beginning on or after January 1, 2018. This bill would conform to federal income tax law with regard to the termination of partnerships described above and would additionally allow a partnership to elect to have this conformity apply to partnership taxable years beginning after December 31, 2017, and before January 1, 2019. This bill would make findings as to the public purpose served by the bill in this regard. (14) The Personal Income Tax Law and the Corporation Tax Law, in modified conformity with federal income tax laws, exclude the recognition of any gain or loss on the exchange of property held for productive use in a trade or business or for investment, if that property is exchanged solely for property of a like kind that is to be held either for productive use in a trade or business or for investment, unless an exception applies. This bill would conform to federal income tax law, as amended by the Tax Cuts and Jobs Act, by limiting that exclusion to the recognition of any gain or loss on the exchange of real property, except as otherwise provided. (15) The Corporation Tax Law, in conformity with federal income tax laws, and when a taxpayer does not elect otherwise for purposes of state income tax law, allows a purchasing corporation to make an election that its qualified stock purchase, as defined, from a target corporation may be treated as an asset acquisition resulting in a step up in the basis of the stock. This bill would provide that if the above-described election for federal income tax purposes has been made or deemed to have been made, or not made or not deemed to have been made, by a taxpayer, a separate state election shall not be allowed. (16) This bill would declare that it is to take effect immediately as an urgency statute.