This article summarizes the recently enacted federal economic stimulus package, entitled the Job Creation and Worker Assistance Act of 2002 (contained in HR 3090), that was signed into law by President Bush on March 9, 2002 [Public Law 107-147], and compares it with current California law.

Applicable citations to the Internal Revenue Code (IRC) and the California Revenue and Taxation Code (CRTC) allow readers to further examine the specifics of this legislation and corresponding state law.

Because California law references the IRC in effect on January 1, 1998 [CRTC Sections 17024.5 and 23105.5], California does not specifically conform to the provisions of this federal tax act or to any other federal tax acts after 1997. Rather, California must affirmatively conform to the federal tax law changes enacted in 1998, 1999, 2000, 2001, and 2002.

BUSINESS PROVISIONS

Act § 101 - Special bonus depreciation allowance for certain property (30% expensing of the value of capital assets with MACRS lives of 20 years or less, leasehold improvements, certain software, and water utility property); bonus depreciation is allowed for both regular and AMT purposes for property acquired on or after 9/11/01 and before 9/11/04; taxpayers may elect IRC § 179 expensing in addition to the bonus depreciation [IRC § 168]. California law does not conform [CRTC §§ 17250 and 24349].

Act § 102 - 5-year carryback of net operating losses (NOL) and waiver of AMT 90% limit on the allowance of losses (including losses carried forward into tax years ending in 2001 and 2002); sunsets after 24 months [IRC §§ 56 and 172]. California law does not permit carrybacks [CRTC §§ 17276 and 24416].

UNEMPLOYMENT ASSISTANCE PROVISIONS

Act §§ 201 through 209 - Additional 13 weeks of temporary extended unemployment benefits for those who exhaust their regular benefits in any state with an insured unemployment rate of at least 4%; authorized $8 billion of special Reed Act transfers in fiscal year 2002. Not applicable for California law. However, Governor Davis has committed to expedite the federal provisions in order to “get benefits flowing to California workers as quickly as possible.”

TAX BENEFITS FOR AREA OF NEW YORK CITY DAMAGED IN TERRORIST ATTACKS ON SEPTEMBER 11, 2001

Act § 301 - Expansion of Work Opportunity Tax Credit targeted categories to include certain employees in New York City for employers with 200 or fewer employees; adds individuals working in or relocated from the Liberty Zone as a targeted group eligible for a modified WOTC (40% of the first $6,000 in wages; allow credit against AMT); sunsets 12/31/03 [IRC § 1400L(a)]. Not applicable for California law.

Act § 301 - 30% bonus depreciation allowance for certain property in Liberty Zone, including residential and non-residential new structures; sunsets 12/31/09 [IRC § 1400L(b)]. Not applicable for California law.

Act § 301 - Authorize issuance of tax-exempt private activity bonds for rebuilding the portion of New York City damages in the September 11, 2001 terrorist attacks; capped at $8 billion in bonds for replacement or reconstruction of office space, residential rental and public utility infrastructure to be issued within the next three years; exempt from AMT; sunsets 12/31/04 [IRC § 1400L(c)]. Not applicable for California law.

Act § 301 - Allow one additional advance refunding for certain previously refunded bonds for facilities located in New York City over a 3-year window; capped at $9 billion; sunsets 12/31/04 [IRC § 1400L(d)].  Not applicable for California law.

Act § 301 - Increase in IRC § 179 expensing treatment by $35,000 for business property used in the New York Liberty Zone; only half of the cost of Section 179 Liberty Zone property is taken into account when applying the phase out threshold; sunsets 12/31/06 [IRC § 1400L]. Not applicable for California law.

Act § 301 - Extend replacement period to 5 years for certain property involuntarily converted in the New York Liberty Zone on 9/11/01, and substantially all of the use of the replacement property is in New York City [IRC § 1400L]. Not applicable for California law.

Act § 301 - Treatment of qualified leasehold improvement property in the New York Liberty Zone (5-year life); sunsets 12/31/06 [IRC § 1400L]. Not applicable for California law.

MISCELLANEOUS AND TECHNICAL PROVISIONS

Act § 401 - Allow IRS Form 1099 to be filed electronically [Act § 401]. Not applicable for California law.

Act § 402 - Discharge of indebtedness of an S corporation; reverses Supreme Court decision in Gitlitz v. Commissioner (2001) 531 U.S. 206 [IRC § 108]. California law does not conform [CRTC §§ 17144 and 24307].  The FTB reversed its position to allow shareholders to increase basis when the Gitlitz decision was issued. Until legislation is enacted to reverse this, California will follow Gitlitz.

Act § 403 - Limitation on the use of non-accrual experience method of accounting to amount to be received for the performance of qualified professional services [IRC § 448]. California law does not conform [CRTC §§ 17551 and 24654].

Act § 404 - Expand the exclusion from income for qualified foster care payments made by qualified placement agencies [IRC § 131]. California law does not conform [CRTC § 17131].

Act § 405 – Temporary increase in the highest specified percentage applied to the interest rate used in determining additional required contributions to defined benefit plans and PBGC variable rate premiums; sunsets 12/31/03 [IRC § 412; ERISA §§ 302 and 4006]. California law does not conform [CRTC §§ 17501 and 24612].

Act § 406 - Above-the-line deduction for teacher classroom materials; capped at $250 [IRC § 62]. California law does not provide a similar deduction [CRTC § 17072].

TAX TECHNICAL CORRECTIONS

Act §§ 411 through 418 – Miscellaneous corrections are made to prior federal tax acts. California law does not conform.

NO IMPACT ON SOCIAL SECURITY TRUST FUNDS

Act § 501 – No impact on Social Security Trust Funds [Act § 501]. Not applicable for California law.

EMERGENCY DESIGNATION

Act § 502 - Emergency designation [Act § 502]. Not applicable for California law.

EXTENSIONS OF CERTAIN EXPIRING PROVISIONS

Act § 601 - Extend alternative minimum tax relief for individual personal credits to 12/31/03 [IRC § 26]. The “Economic Growth & Tax Relief Reconciliation Act of 2001” provides that the child tax credit and adoption tax credit are allowed for purposes of the AMT for 2002 through 2010. California law provides similar treatment, but it is permanent [CRTC § 17039].

Act § 602 - Extend credit for purchase of electric vehicles by 24 months [IRC §§ 30 and 280F]. California law does not provide a similar credit.

Act § 603 - Extend credit for production of electricity from wind, closed loop biomass and poultry litter to 12/31/03 [IRC § 45]. California law does not provide a similar credit.

Act § 604 - Extend the Work Opportunity Tax Credit to 12/31/03 [IRC § 51].  California does not conform to the federal credit.  However, it does have a hiring credit for certain “disadvantaged individuals” employed in an enterprise zone (CRTC §§ 17053.74 and 23622.7), local agency military base reuse area (CRTC §§ 17053.46 and 23646), targeted tax area (CRTC §§ 17053.34 and 23634) or manufacturing enhancement area (CRTC §§ 17053.47 and 23622.8).

Act § 605 - Extend the Welfare-to-Work Tax Credit to 12/31/03 [IRC § 51A].  California does not conform to the federal credit. However, it does have a hiring credit for certain “disadvantaged individuals” employed in an enterprise zone (CRTC §§ 17053.74 and 23622.7), local agency military base reuse area (CRTC §§ 17053.46 and 23646), targeted tax area (CRTC §§ 17053.34 and 23634) or manufacturing enhancement area (CRTC §§ 17053.47 and 23622.8).

Act § 606 - Extend deduction for qualified clean-fuel vehicle property and qualified clean-fuel vehicle refueling property by 24 months [IRC §§ 179A and 280F]. California law does not conform to the extension, but does conform to the deduction [CRTC §§ 17256 and 24356.5].

Act § 607 - Suspend taxable income limit (100% of net income) on percentage depletion for marginal production of oil and gas wells to 12/31/03 [IRC § 613A].  California law does not conform to the suspension, but does conform to the percentage depletion method [CRTC §§ 17681 and 24831].

Act § 608 - Extend authority to issue qualified zone academy bonds to 12/31/03 [IRC § 1397E]. California law does not conform.

Act § 609 - Extend increased cover over of rum excise tax revenues (from $10.50 to $13.25 per proof gallon) to Puerto Rico and the Virgin Islands to 12/31/03 [IRC § 7652]. Not applicable to California law.

Act § 610 - Tax on failure to comply with mental health parity requirements applicable to group health plans to 12/31/03 [IRC § 9812(f)]. California law does not conform.

Act § 611 - Suspend reduction in policyholder dividends deductions for mutual life insurance companies to 12/31/03 [IRC § 809]. California law does not conform.

Act § 612 - Extend Archer Medical Savings Accounts to 12/31/03 [IRC § 220].  California law does not conform to the extension, but does conform to MSAs [CRTC §§ 17215 and 24343.3].

Act § 613 - Extend tax incentives (Accelerated depreciation and employment tax credit) for investment on Indian reservations to 12/31/04 [IRC §§ 45A and 168(j)].  California law does not conform.

Act § 614 - Extend and modify exceptions under Subpart F for active financing income (allow use of foreign statement of insurance reserves pursuant to guidance) to 12/31/06 [IRC §§ 953 and 954]. California law does not conform.

Act § 615 - Permanent suspension of requirement that registered terminals selling diesel fuel and kerosene must sell both dyed and undyed fuel [IRC § 4101]. Not applicable for California law.

TEMPORARY ASSISTANCE TO NEEDY FAMILIES PROVISIONS

Act § 616 - Reauthorize TANF supplemental grants for population increases for Fiscal Year 2002 (thru 9/30/02) [Act § 616]. Not applicable for California law.

Act § 617 - One-year extension of contingency fund under the TANF program (thru 9/30/02) [Act § 617]. Not applicable for California.

Comparison Chart of Federal “Job Creation and Worker Assistance Act of 2002” and California Tax Laws

Job Creation and Worker Assistance Act of 2002 (P.L. 107-147)

ACT §	FEDERAL LAW	IRC §	CALIFORNIA LAW	CRTC §
101	Special bonus depreciation allowance for certain property; 30% expensing of assets with MACRS lives of 20 years or less; sunsets after 36 months	168	Does not conform	17250 and 24349
102	5-year carryback of net operating losses (NOL) and waiver of AMT 90% limit on loss allowances; sunsets after 24 months	56 and 172	Does not conform; CA law does not permit carrybacks	17276 and 24416
201 – 209	Additional 13 weeks of temporary extended unemployment benefits for those who exhaust regular benefits; special Reed Act transfer for fiscal year 2002	Act §§ 201 – 209	Not applicable	N/A
301	Expansion of Work Opportunity Tax Credit targeted categories to include certain employees in New York City; sunsets 12/31/03	1400L (a)	Not applicable	N/A
301	30% bonus depreciation allowance for certain property in Liberty Zone; sunsets 12/31/06	1400L (b)	Not applicable	N/A
301	Authorize issuance of tax-exempt private activity bonds for rebuilding the portion of New York City damages in the September 11, 2001 terrorist attacks; capped at $8 billion; exempt from AMT; sunsets 12/31/04	1400L (c)	Not applicable	N/A
301	Allow one additional advance refunding for certain previously refunded bonds for facilities located in New York City over a 3-year window; sunsets 12/31/04	1400L (d)	Not applicable	N/A
301	Increase in expensing treatment for business property used in the New York Liberty Zone; sunsets 12/31/06	1400L	Not applicable	N/A
301	Extend replacement period to 5 years for certain property involuntarily converted in the New York Liberty Zone on 9/11/01	1400L	Not applicable	N/A
301	Treatment of qualified leasehold improvement property; sunsets 12/31/06	1400L	Not applicable	N/A
401	Allow Form 1099 to be provided electronically	Act § 401	Not applicable	N/A
402	Discharge of indebtedness of an S corporation; reverses Supreme Court decision in Gitlitz v. Commissioner	108	Does not conform	17144 and 24307
403	Limitation on the use of non-accrual experience method of accounting for qualified professional services	448	Does not conform	17551 and 24654
404	Expand the exclusion from income for qualified foster care payments made by placement agencies	131	Does not conform	17131
405	Interest rate used in determining additional required contributions to defined benefit plans and PBGC variable rate premiums; sunsets 12/31/03	412; ERISA 302 and 4006	Does not conform	17501 and 24612
406	Above-the-line deduction for teacher classroom materials; capped at $250 annually	62	Does not conform	17072
411 – 418	Technical corrections to previous federal acts	Act §§ 411 – 418	Does not conform	Misc.
501	No impact on Social Security Trust Funds	Act § 501	Not applicable	N/A
502	Emergency designation	Act § 502	Not applicable	N/A
601	Extend alternative minimum tax relief for individual personal credits to 12/31/03	26	Conforms; CA relief is permanent	17039
602	Extend credit for purchase of electric vehicles by 24 months	30 and 280F	Not applicable	N/A
603	Extend credit for production of electricity from wind, closed loop biomass and poultry litter to 12/31/03	45	Not applicable	N/A
604	Extend the Work Opportunity Tax Credit to 12/31/03	51	Not applicable	N/A
605	Extend the Welfare-to-Work Tax Credit to 12/31/03	51A	Not applicable	N/A
606	Extend deduction for qualified clean-fuel vehicle property and qualified clean-fuel vehicle refueling property by 24 months	179A and 280F	Does not conform to extension, but does conform to the deduction	17256 and 24356.5
607	Suspend taxable income limit on percentage depletion for marginal production to 12/31/03	613A	Does not conform	17681 and 24831
608	Extend authority to issue qualified zone academy bonds to 12/31/03	1397E	Not applicable	N/A
609	Extend increased cover over payments to Puerto Rico and the Virgin Islands to 12/31/03	7652	Not applicable	N/A
610	Tax on failure to comply with mental health parity requirements to 12/31/03	9812(f)	Does not conform	N/A
611	Suspend reduction of deductions for mutual life insurance companies to 12/31/03	809	Does not conform	N/A
612	Extend Archer Medical Savings Accounts to 12/31/03	220	Does not conform to extension, but conforms to MSAs	17215 and 24343.3
613	Extend tax incentives (Accelerated depreciation and employment tax credit) for investment on Indian reservations to 12/31/04	45A and 168(j)	Does not conform	N/A
614	Extend and modify exceptions under Subpart F for active financing income to 12/31/06	953 and 954	Does not conform	N/A
615	Permanent suspension of dyed-fuel requirement for registered diesel fuel and kerosene terminals	4101	Not applicable	N/A
616	Reauthorize TANF supplemental grants for population increases for Fiscal Year 2002 (thru 9/30/02)	Act 616	Not applicable	N/A
617	One year extension of contingency fund under the TANF program (thru 9/30/02)	Act 617	Not applicable	N/A

© Chris Micheli and Gina Rodriquez, 2002.