By Chris Micheli
I. Introduction
The purpose of this article is to provide another annual update on proposals and amendments to the statutes implementing California’s manufacturing equipment tax incentives. As readers may recall, since the initial statutes were enacted in 1993 (SB 671, Ch. 881) and then expanded in 1994 (SB 676, Ch. 751), there have been several modifications to the statutes.
In 1995, legislative attempts to expand the statutes were unsuccessful. However, in 1996 (SB 38, Ch. 954), the MIC “special purpose buildings” and “small business” provisions were expanded. In addition, several technical changes were made. In 1997 (SB 1106, Ch. 604), only technical changes were made to the MIC statute.
In 1998 (AB 2798, Ch. 323), the MIC definitions of “qualified taxpayer” and “qualified property” were expanded to include software developers. In 1999 (SB 1229, Ch. 987), there were only technical amendments to the MIC statute. There also was an effort to expand the statutes. In 2000, legislative attempts to increase the MIC percentage and expand it to other industries were unsuccessful. Similarly, in 2001, there were several measures to expand the MIC, none of which was successful. However, (SB 1185, Ch. 543) a technical amendment concerning the recapture provision was enacted.
II. 2001 Legislation Affecting the Partial Exemption
Although unsuccessful, the following measures to amend CRTC Section 6377 were considered by the California Legislature during the 2001 Legislative Session:
AB 593 (Diaz) – would expand the partial sales/use tax exemption to include software developers; sponsored by Governor Davis.
SB 1191 (Speier) – would have deleted the EDD annual reporting requirement; this provision was removed from the bill before it was signed into law.
III. 2001 Legislation Affecting the MIC
With one exception, the following measures were unsuccessful in amending CRTC Sections 17053.49 and 23649:
AB 110 (Zettel) – would increase the MIC to 9%.
AB 240 (Runner) – would increase the MIC to 7% and expand the MIC to energy producers and non-metallic extractive industry; sponsored by CMTA.
AB 278 (Cohn) – would increase the MIC to 7% and extend the sunset date to 1/1/08; sponsored by Governor Davis.
AB 290 (Cogdill) – would expand the MIC to agriculture industry and non-metallic extractive industry.
AB 1169 (Campbell) – would expand the MIC to energy producers.
AB 1275 (Campbell) – would expand the MIC to oil and gas extractive industries.
AB 1276 (Campbell) – would expand the MIC to energy producers.
AB 45x (Kelley) – would expand the MIC to renewable energy producers.
AB 85x (Campbell) – would expand the MIC to oil and gas extractive industries.
AB 96x (Campbell) – would expand the MIC to energy producers.
SB 559 (Morrow) – would increase the MIC to 8%.
SB 595 (Chesbro) – would expand the MIC to wine tanks and foundations.
SB 875 (Poochigian) – would expand the MIC to agriculture industry and mineral extractive industry.
SB 1123 (Costa) – would expand the MIC to lessors.
SB 1185 (Rev&Tax Cmte) – contains the FTB’s MIC recapture exception (see below); signed into law; sponsored by FTB.
SB 1191 (Speier) – would have deleted the EDD annual reporting requirement; this provision was removed from the bill before it was signed into law.
IV. FTB Legislative Proposal on the MIC
FTB staff submitted for consideration a legislative proposal that would create an exception to the MIC recapture rules (LP 01-09). According to FTB staff, an election to treat the purchase of stock as an asset acquisition triggers recapture of the MIC if the purchase of stock occurs within one year from the date the MIC property was first placed in service in California. This provision was enacted into law in SB 1185 (Revenue & Taxation Committee) [Stats. 2001, Ch. 543].
SB 1185 amends the MIC to provide specifically that an election to treat the purchase of stock as an asset acquisition would not trigger the recapture provisions. According to the FTB, “based on limited data available and discussions with Legal staff, it is not anticipated that this proposal would have a significant revenue impact. Relatively few taxpayers are subject to the current recapture provisions.”
As a result, SB 1185 added the following sentence to CRTC Sections 17053.49 and 23649(g): The sale of stock for which an election was made or deemed to have been made pursuant to Section 338(g) or 338(h)(10) of the Internal Revenue Code shall not be treated as a disposition of qualified property to an unrelated party for purposes of this subdivision.
Chris Micheli is an attorney and registered lobbyist for the Sacramento governmental relations firm of Carpenter Snodgrass & Associates (916/447-2251). He served as the lead lobbyist on the original MIC and partial exemption statutes while serving as General Counsel to the California Manufacturers Association, and has successfully expanded the MIC statute on behalf of several industries.