AB 2355: Sales and use taxes: exclusions: exemptions: income taxes: credits: border wall.

Existing sales and use tax laws impose taxes on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state. The Sales and Use Tax Law provides various exemptions from those taxes, including a partial exemption from those taxes, on and after July 1, 2014, and before July 1, 2030, for the gross receipts from the sale of, and the storage, use, or other consumption of, qualified tangible personal property purchased by a qualified person for purchases not exceeding $200,000,000, for use primarily in manufacturing, processing, refining, fabricating, or recycling of tangible personal property, as specified; qualified tangible personal property purchased for use by a qualified person to be used primarily in research and development, as provided; qualified tangible personal property purchased for use by a qualified person to be used primarily to maintain, repair, measure, or test any qualified tangible personal property, as provided; and qualified tangible personal property purchased by a contractor purchasing that property for use in the performance of a construction contract for the qualified person, that will use that property as an integral part of specified processes. Existing law, on and after January 1, 2018, and before July 1, 2030, additionally exempts from those taxes the sale of, and the storage, use, or other consumption of, qualified tangible personal property purchased for use by a qualified person to be used primarily in the generation or production, as defined, or storage and distribution, as defined, of electric power.

This bill, on and after January 1, 2019, would eliminate those partial exemptions for the gross receipts from the sale of, and the storage, use, or other consumption of, qualified tangible personal property purchased for use by, and for use in the performance of a construction contract for, any qualified person who is a person that contracts or subcontracts to build, maintain, or provide materials for a specified border wall, as defined.

Existing law establishes the California Alternative Energy and Advanced Transportation Financing Authority to provide financial assistance for projects that promote the use of alternative energies. Existing law, until January 1, 2021, authorizes the authority to approve a project for financial assistance in the form of a sales and use tax exclusion for a participating party, as defined. The Sales and Use Tax Law, for the purposes of the taxes imposed pursuant to that law, excludes the lease or transfer of title of tangible personal property constituting a project to a participating party.

This bill, on and after January 1, 2019, would prohibit the authority from approving a project for that financial assistance for any applicant who is a person organized for profit that contracts or subcontracts to build, maintain, or provide materials for a specified border wall, as defined. The bill, on and after January 1, 2019, would eliminate that sales and use tax exclusion for any participating party who is a person organized for profit that contracts or subcontracts to build, maintain, or provide materials for the border wall.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws, including, (1) in modified conformity to a credit allowed under federal income tax law, a credit for increasing research expenses; (2) for taxable years beginning on or after January 1, 2014, and before January 1, 2021, a credit for hiring qualified full-time employees within specified economic development areas in an amount equal to 35% of the qualified wages paid to those employees multiplied by the applicable percentage for that taxable year; and (3) for each taxable year beginning on or after January 1, 2014, and before January 1, 2025, in an amount as provided in a written agreement between the Governors Office of Business and Economic Development and the taxpayer, agreed upon by the California Competes Tax Credit Committee, and based on specified factors, including the number of jobs the taxpayer will create or retain in the state and the amount of investment in the state by the taxpayer.

This bill, for taxable years beginning on or after January 1, 2019, would disallow those credits to a taxpayer that contracts or subcontracts to build, maintain, or provide materials for a specified border wall, as defined.

This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIIIA of the California Constitution, and thus would require for passage the approval of ²/₃ of the membership of each house of the Legislature.

This bill would take effect immediately as a tax levy.