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:
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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, 2024. 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.