SECTIONS 24401-24416.22 - California Statutes

REVENUE AND TAXATION CODE

SECTION 24401-24416.22

24401. In addition to the deductions provided in Article 1
(commencing with Section 24341), there shall be allowed as deductions
in computing taxable income the items specified in this article.

24402. (a) A portion of the dividends received during the taxable
year declared from income which has been included in the measure of
the taxes imposed under Chapter 2 (commencing with Section 23101),
Chapter 2.5 (commencing with Section 23400), or Chapter 3 (commencing
with Section 23501) upon the taxpayer declaring the dividends.
(b) The portion of dividends which may be deducted under this
section shall be as follows:
(1) In the case of any dividend described in subdivision (a),
received from a "more than 50 percent owned corporation," 100
percent.
(2) In the case of any dividend described in subdivision (a),
received from a "20 percent owned corporation," 80 percent.
(3) In the case of any dividend described in subdivision (a),
received from a corporation that is less than 20 percent owned, 70
percent.
(c) For purposes of this section:
(1) The term "more than 50 percent owned corporation" means any
corporation if more than 50 percent of the stock of that corporation
(by vote and value) is owned by the taxpayer. For purposes of the
preceding sentence, stock described in Section 1504(a)(4) of the
Internal Revenue Code shall not be taken into account.
(2) The term "20 percent owned corporation" means any corporation
if 20 percent or more of the stock of that corporation (by vote and
value) is owned by the taxpayer. For purposes of the preceding
sentence, stock described in Section 1504(a)(4) of the Internal
Revenue Code shall not be taken into account.
(d) (1) No deduction shall be allowed under this section in
respect of any dividend on any share of stock:
(A) which is held by the taxpayer for 45 days or less during the
90-day period beginning on the date which is 45 days before the date
on which the share becomes ex-dividend with respect to that dividend,
or
(B) to the extent that the taxpayer is under an obligation
(whether pursuant to a short sale or otherwise) to make related
payments with respect to positions in substantially similar or
related property.
(2) In the case of stock having preference in dividends, if the
taxpayer receives dividends with respect to that stock which are
attributable to a period or periods aggregating in excess of 366
days, subparagraph (A) of paragraph (1) shall be applied as follows:
(A) By substituting "90 days" for "45 days" in each place it
appears.
(B) By substituting "180-day period" for "90-day period."
(3) For purposes of this subdivision, in determining the period
for which the taxpayer has held any share of stock:
(A) the day of disposition, but not the day of acquisition, shall
be taken into account, and
(B) Section 1223(4) of the Internal Revenue Code shall not apply.
(4) Section 246(c)(4) of the Internal Revenue Code, relating to
the holding period reduced for periods where risk of loss diminished,
shall apply, except as otherwise provided.
(e) (1) The amendments made by the act adding this subdivision
shall apply to dividends received or accrued after the 30th day after
the date of the enactment of the act adding this subdivision.
(2) The amendments made by the act adding this subdivision shall
not apply to dividends received or accrued during the two-year period
beginning on the date of the enactment of the act adding this
subdivision if:
(A) the dividend is paid with respect to stock held by the
taxpayer on January 1, 1998 and all times thereafter until the
dividend is received,
(B) that stock is continuously subject to a position described in
Section 246(c)(4) of the Internal Revenue Code on January 1, 1998,
and all times thereafter until the dividend is received, and
(C) that stock and position are clearly identified in the taxpayer'
s records within 30 days after the date of the enactment of the act
adding this subdivision.
(3) Stock shall not be treated as meeting the requirement of
subparagraph (B) of paragraph (2) if the position is sold, closed, or
otherwise terminated and reestablished.

24403. In the case of a building and loan association, organized
and operating wholly or partly on a mutual plan, or a federal savings
and loan association, organized and operating wholly or partly on a
mutual plan, the return paid or credited on or apportioned to their
withdrawable shares.

24404. In the case of farmers, fruit growers, or like associations
organized and operated in whole or in part on a cooperative or mutual
basis, (a) for the purpose of marketing the products of members or
other producers, and turning back to them the proceeds of sales, less
the necessary marketing expenses, which may include reasonable
reserves, on the basis of either the quantity or the value of the
products furnished by them, or (b) for the purpose of purchasing, or
producing, supplies and equipment for the use of members or other
persons, and turning over such supplies and equipment to them at
actual cost, plus necessary expenses, all income resulting from or
arising out of such business activities for or with their members
carried on by them or their agents; or when done on a nonprofit basis
for or with nonmembers.
For the purposes of this section "all income resulting from or
arising out of such business activities for or with their members"
shall include all amounts, whether or not derived from patronage,
allocated to members during the taxable year. Amounts allocated
include cash, merchandise, capital stock, revolving fund
certificates, certificates of indebtedness, retain certificates,
letters of advice, or written instruments which in some other manner
disclose to each member the dollar amount allocated to him.
Allocations made after the close of the taxable year and on or before
the fifteenth day of the ninth month following the close of such
year shall be considered as made on the last day of such taxable year
to the extent the allocations are attributable to income derived
before the close of such year.

24405. (a) In the case of other associations organized and operated
in whole or in part on a cooperative or a mutual basis, all income
resulting from or arising out of business activities for or with
their members carried on by them or their agents, or when done on a
nonprofit basis for or with nonmembers, shall be an allowable
deduction. However, the deduction allowable under this section shall
not apply to those cooperative or mutual associations whose income is
principally derived from the sale in the regular course of business
of tangible personal property other than water, agricultural
products, or food sold at wholesale.
(b) For the purposes of subdivision (a), "food sold at wholesale"
means a sale of food to anyone engaged in the business of selling
food who holds a seller's permit issued pursuant to Section 6066, and
who at the time of purchasing the food either:
(1) Intends to sell it in the regular course of business.
(2) Is unable to ascertain at the time of purchase whether the
food will be sold or used for some other purpose.
(c) For the purposes of subdivision (a), a credit union's
activities are "for or with" the members of the credit union if the
activities involve the investment of surplus member savings capital
in investments permitted for credit unions pursuant to Sections
14406, 14652, 14653, 14653.5, 14654, 14655, and 14656 of the
Financial Code. "Surplus member savings capital" means the savings
capital of credit union members which is in excess of the amount of
savings capital which is loaned to members of the credit union. The
term "savings capital" shall have the meaning set forth in
subdivision (a) of Section 14400 of the Financial Code.
(d) For purposes of subdivision (a), "income resulting from or
arising out of business activities for or with their members"
includes, but is not limited to, all income resulting from reciprocal
transactions with member credit unions.

24406. In the case of other associations organized and operated as
co-operative corporations pursuant to Part 2 (commencing with Section
12200), Division 3, Title 1 of the Corporations Code, whose income
is principally derived from the sale in the regular course of
business of tangible personal property other than water, agricultural
products or food sold at wholesale, all patronage refunds paid or
accrued to patrons if the patronage refunds are made and allocated as
follows:
(a) Made pursuant to a pre-existing obligation which is created by
the association's bylaws or other written instrument.
(b) Made from earnings which are attributable to business done by
the association with the patrons to whom the patronage refunds are
made, and allocated ratably according to patronage.
(c) Allocated, and the patrons to whom the patronage refunds are
to be made are notified of the allocation, on or before the due date
for the filing of the association's franchise tax return, including
any extension of time, pursuant to this part, for the year in which
the patronage occurred.

24406.5. (a) In the case of gas producers' cooperative associations
organized and operated as cooperative corporations pursuant to
Chapter 1 (commencing with Section 3001) of Part 4 of Division 1 of
the Public Utilities Code, whose income is principally derived from
the sale in the regular course of business of tangible personal
property other than water, agricultural products or food sold at
wholesale, all patronage refunds paid or accrued to patrons if the
patronage refunds are made and allocated as follows:
(1) Made pursuant to a preexisting obligation which is created by
the association's bylaws or other written instrument.
(2) Made from earnings which are attributable to business done by
the association with the patrons to whom the patronage refunds are
made, and allocated ratably according to patronage.
(3) Allocated, and the patrons to whom the patronage refunds are
to be made are notified of the allocation, on or before the due date
for the filing of the association's franchise tax return, including
any extension of time, pursuant to this part, for the year in which
the patronage occurred.
(b) Each cooperative corporation shall certify to the Franchise
Tax Board its eligibility for the deduction provided by this section.
Certification shall be made at the time and in the manner prescribed
by the Franchise Tax Board in forms or instructions.

24406.6. For purposes of Section 24373.5, and Sections 24404 to
24406.5, inclusive, net earnings shall not be reduced by amounts paid
during the year as dividends on capital stock or other proprietary
capital interests of the organization to the extent that the articles
of incorporation, bylaws of the organization, or other contract with
patrons provide that those dividends are in addition to amounts
otherwise payable to patrons that are derived from business done for
or with patrons during the taxable year.

24407. (a) The organizational expenditures of a corporation may, at
the election of the corporation (made in accordance with regulations
prescribed by the Franchise Tax Board), be treated as deferred
expenses. In computing net income, the deferred expenses remaining,
if any, after the application of subdivision (b) shall be allowed as
a deduction ratably over that period of not less than 180 months as
may be selected by the corporation (beginning with the month in which
the corporation begins business).
(b) (1) The corporation shall be allowed a deduction for the
deferred expenses under subdivision (a) in an amount equal to the
lesser of either of the following:
(A) The amount of organizational expenditures of the taxpayer that
are treated as deferred expenses under subdivision (a).
(B) Five thousand dollars ($5,000), reduced, but not below zero,
by an amount equal to the excess of the amount of the taxpayer's
organizational expenditures treated as deferred expenses under
subdivision (a) over fifty thousand dollars ($50,000).
(2) The deduction under paragraph (1) shall be allowed in the
taxable year in which the first month of the period specified in
subdivision (a) occurs.
(c) The amendments made to this section by the act adding this
subdivision shall apply to amounts paid or incurred on or after
January 1, 2005.

24408. The term "organizational expenditures" means any expenditure
that meets all of the following requirements:
(a) Is incident to the creation of the corporation.
(b) Is chargeable to capital account.
(c) Is of a character which, if expended incident to the creation
of a corporation having a limited life, would be amortizable over
that life.

24409. The election provided by Section 24407 may be made for any
taxable year beginning after December 31, 1960, but only if made not
later than the time prescribed by law for filing the return for that
taxable year (including extensions thereof). The period so elected
shall be adhered to in computing the income of the corporation for
the taxable year for which the election is made and all subsequent
taxable years. The election shall apply only with respect to the
expenditures paid or incurred on or after June 23, 1961.

24410. (a) For taxable years commencing on or after January 1,
2004, the allowable dividends received deduction with respect to
qualified dividends received by a corporation during the taxable year
from a corporation that is an insurer within the meaning of Section
28 of Article XIII of the California Constitution, whether or not the
insurer is engaged in business in California, if at the time of each
dividend payment at least 80 percent of each class of the stock of
the insurer was owned, directly or indirectly, by the corporation
receiving the dividend shall equal the percentage specified in
paragraph (1) of the amount of the qualified dividends received.
(1) For purposes of this subdivision, the percentage is equal to:
(A) Eighty percent for taxable years beginning on or after January
1, 2004, and before January 1, 2008.
(B) Eighty-five percent for taxable years beginning on or after
January 1, 2008, and thereafter.
(b) (1) For all taxable years ending on or after December 1, 1997,
and commencing before January 1, 2004, a taxpayer may elect to
determine its deduction under this section for dividends received by
the taxpayer (or the members of the taxpayer's commonly controlled
group, if any) during each taxable year from a corporation that is an
insurer within the meaning of Section 28 of Article XIII of the
California Constitution, whether or not the insurer is engaged in
business in California, in an amount equal to 80 percent of the
qualified dividends received, if at the time of each dividend payment
at least 80 percent of each class of stock of the insurer was owned,
directly or indirectly, by the corporation receiving the dividend.
(2) A taxpayer shall make the election under this subdivision by
timely filing a return for at least one taxable year ending on or
after December 1, 1997, and commencing before January 1, 2004,
expressly electing to be subject to the dividends received deduction
in accordance with the percentage set forth in paragraph (1), and
reporting and remitting any amounts due pursuant to that election.
(3) A return is timely filed for purposes of paragraph (2) if it
is filed within 180 days of the effective date of the act adding this
section.
(4) By making the election pursuant to this subdivision, the
taxpayer agrees to all of the following:
(A) To be subject to the dividends received deduction in
accordance with the percentage set forth in paragraph (1) for all
taxable years ending on or after December 1, 1997, and commencing
before January 1, 2004, for which the Franchise Tax Board may propose
an assessment or allow a claim for refund, or in which the final
determination of tax for the taxable year has not been made because
of a dispute related to the dividends received deduction or the
application of Section 24425 to any expense related to that dividends
received deduction.
(B) (i) Except as provided in clause (ii), to file a return (or
amended return) and remit any amounts due pursuant to the election
for all taxable years ending on or after December 1, 1997, and
commencing before January 1, 2004, for which the Franchise Tax Board
may propose an assessment or allow a claim for refund, within 180
days of the effective date of the act adding this section.
(ii) In the case of a taxable year for which the due date of the
return is more than 180 days after the effective date of the act
adding this section, to file the return and remit any amounts due
pursuant to the election under this subdivision on or before the due
date of the return.
(5) For purposes of determining taxable income on the return (or
amended returns) filed pursuant to the election set forth in
paragraph (1), Section 24425 does not apply to the amount of the
dividends received deduction.
(6) The election is irrevocable. With respect to electing
taxpayers, no refund, credit, or offset may be allowed for a
deduction for dividends received from an insurance company in excess
of the amounts allowed under this subdivision for taxable years
ending on or after December 1, 1997, and beginning before January 1,
2004.
(c) For purposes of determining the allowable dividend received
deduction under this section, a qualified dividend received during
the taxable year means a dividend received by the taxpayer during the
taxable year multiplied by the percentage prescribed under paragraph
(1), (2), or (3) of this subdivision, as the case may be.
(1) If the ratio of the five-year average net written premiums for
all insurance companies in a commonly controlled group to the
five-year average total income for all insurance companies in the
commonly controlled group for the taxable year is greater than or
equal to the applicable percentage, then the percentage under this
subdivision shall be 100 percent.
(2) If the ratio of the five-year average net written premiums for
all insurance companies in a commonly controlled group to the
five-year average total income for all insurance companies in the
commonly controlled group for the taxable year is less than the
applicable percentage and greater than 10 percent, then the
percentage under this subdivision shall be equal to the following
fraction, expressed as a percentage:
(A) The numerator is the five-year average net written premiums
for the taxable year.
(B) The denominator is the applicable percentage times the
five-year average total income for that taxable year.
(3) If the ratio of the five-year average net written premiums for
all insurance companies in a commonly controlled group to the
five-year average total income for all insurance companies in the
commonly controlled group for the taxable year is equal to or less
than 10 percent, the percentage under this subdivision shall be zero.
(4) For purposes of this subdivision:
(A) The "five-year average" means the aggregate net written
premiums or total income, as the case may be, over the five
immediately preceding calendar or fiscal years, divided by five. For
purposes of this computation, if an insurance company in the commonly
controlled group has been in existence for fewer than five years,
its aggregate net written premiums and total income shall each be
multiplied by five and divided by the number of years of its
existence. If an insurance company does not have a regulatory filing
requirement, the period covered shall be the fiscal year used for the
insurance company's financial statements. The use of either the
calendar year or fiscal year, as the case may be, for determination
of the five-year average shall, for the first taxable year in which
it is computed, be treated as an accounting method under this part
and may thereafter only be changed with the written consent of the
Franchise Tax Board.
(B) For taxable years beginning before January 1, 2008, the
applicable percentage shall be 60 percent. For taxable years
beginning on or after January 1, 2008, the applicable percentage
shall be 70 percent.
(d) The following rules apply with respect to the application of
this section to dividends received from an insurance company that
insures risks of a member of the insurance company's commonly
controlled group.
(1) Notwithstanding paragraph (2), for purposes of determining the
amount of the deduction authorized by subdivisions (a) and (b), no
deduction is allowed for dividends attributable to premiums received
or accrued by the insurance company from a member of the insurance
company's commonly controlled group. For purposes of this paragraph,
dividends attributable to premiums received or accrued from a member
of a commonly controlled group is equal to total dividends received
multiplied by the greater of either of the following:
(A) The ratio of net written premiums from a member of the
insurance company's commonly controlled group divided by total net
written premiums.
(B) (i) For a property casualty insurer, the ratio of the
underwriting risk associated with a member of the commonly controlled
group's insurance contracts to the insurance company's total
underwriting risks for all insurance contracts. The underwriting risk
is the underwriting risk reserves (losses plus expense risk-based
capital after discount) as calculated using the "RBC Instructions."
(ii) For a life insurer, the ratio of aggregate reserves for life,
accident, and health contracts plus liability for deposit type
contracts plus contract claims held for policies issued to members of
the insurance company's commonly controlled group divided by total
aggregate reserves for life, accident, and health contracts plus
liability for deposit type contracts plus contract claims.
(2) Net written premiums do not include premiums received or
accrued from another member of the insurance company's commonly
controlled group. Premiums from another member of the commonly
controlled group is the greater of either of the following:
(A) Net written premiums from a member of the insurance company's
commonly controlled group.
(B) (i) For a property casualty insurer, the net written premiums
received or accrued by the insurance company multiplied by the ratio
of the underwriting risk associated with the member of the commonly
controlled group's insurance contracts to the insurance company's
total underwriting risks for all insurance contracts. The
underwriting risk is the underwriting risk reserves (loss plus
expense risk-based capital after discount) as calculated using the
"RBC Instructions."
(ii) For a life insurer, net written premiums received or accrued
by the insurance company multiplied by the ratio of aggregate
reserves for life, accident, and health contracts plus liability for
deposit type contracts plus contract claims held for policies issued
to members of the insurance company's commonly controlled group
divided by total aggregate reserves for life, accident, and health
contracts plus liability for deposit type contracts plus contract
claims.
(3) For purposes of this section, investment income shall be
limited to that portion of investment income equal to the ratio of
net written premiums (determined under paragraph (2)) to total net
written premiums (determined without regard to paragraph (2)).
(4) For purposes of the limitations described in this subdivision,
premiums received or accrued from a member of the insurance company'
s commonly controlled group does not include premiums where the
direct insurance risks ceded by affiliates and assumed by the
insurance company originated with a person that is not a member of
the insurance company's commonly controlled group.
(e) For purposes of this section:
(1) "Net written premiums" means direct written premiums plus
premiums from reinsurance assumed, less premiums ceded to a
reinsurance company, as would be required to be reported in an
insurer's Statutory Annual Statement in accordance with the Annual
Statement Instructions and Accounting Practices and Procedures Manual
promulgated by the National Association of Insurance Commissioners.
Net written premiums from life insurance contracts shall be
determined by multiplying the net written premiums received, assumed,
or ceded by 1.3. Net written premiums from financial guaranty
insurance contracts shall be determined by multiplying the net
written premiums received, assumed, or ceded by the lesser of 2.3 or
an amount that would cause the ratio of the five-year average net
written premiums for all financial guaranty insurance companies in
the commonly controlled group to the five-year average total income
for all financial guaranty insurance companies in the commonly
controlled group to be equal to the applicable percentage. Paragraph
(4) of subdivision (c) applies for purposes of the preceding
sentence.
(A) "Direct written premiums" means amounts written by an
insurance company in consideration for insurance and annuity
contracts issued to policyholders.
(B) "Premiums from reinsurance assumed" means amounts received or
accrued by an insurance company in consideration for liabilities it
assumes from another insurance company.
(C) "Premiums ceded" means insurance premiums paid or accrued by
an insurance company to a reinsurer to support the liabilities
assumed by the reinsurer.
(2) "Total income" means net written premiums plus investment
income.
(3) "Investment income" means an insurance company's earnings from
its investment portfolio, including interest, dividends, realized
gains (or losses), and rent, as would be required to be reported in
an insurer's Statutory Annual Statement in accordance with the Annual
Statement Instructions and Accounting Practices and Procedures
Manual promulgated by the National Association of Insurance
Commissioners, except as otherwise provided.
(A) Except for reinsurance transactions, realized gains (or
losses) do not include losses incurred in transactions with a person
that is a member of the taxpayer's or the insurance company's
commonly controlled group.
(B) Investment income does not include dividends from a person
that is a member of the commonly controlled group. Intercompany
dividends that have been eliminated from investment income as would
be required to be reported in the Statutory Annual Statement in
accordance with the Annual Statement Instructions and Accounting
Practices and Procedures Manual promulgated by the National
Association of Insurance Commissioners shall not again be eliminated
for this purpose.
(C) Investment income does not include income included in the
taxpayer's combined report filed in accordance with Chapter 17
(commencing with Section 25101) of this part.
(4) For taxable years beginning before January 1, 2004, the "RBC
Instructions" as defined in Section 739 of the Insurance Code means
the Risk Based Capital Instructions and Report as promulgated by the
National Association of Insurance Commissioners, as it read on
January 1, 2004. For taxable years beginning on or after January 1,
2004, the "RBC Instructions" as defined in Section 739 of the
Insurance Code means the Risk Based Capital Instructions and Report
as promulgated by the National Association of Insurance
Commissioners, or any substantially equivalent successor instructions
and report, as it read on January 1 of the year in which the
taxpayer's taxable year begins.
(5) The phrase "commonly controlled group" shall have the same
meaning as that phrase has under Section 25105.
(f) The Franchise Tax Board may prescribe those regulations that
may be necessary to provide for the following:
(1) Establishment of a comparable weighting factor as described in
paragraph 1 of subdivision (e) for new lines of insurance not
described in the act adding this subdivision.
(2) For purposes of determining the applicable ratios described in
subdivisions (c) and (d), the inclusion or exclusion of items of
investment income to eliminate the effects of devices designed to
manipulate those ratios for purposes of avoiding the tax imposed
under this part.
(3) For purposes of determining the applicable ratios described in
subdivisions (c) and (d), the inclusion or exclusion of items of
investment income to prevent distortion causing significant reduction
in those ratios.

24411. (a) For purposes of those taxpayers electing to compute
income under Section 25110, 100 percent of the qualifying dividends
described in subdivision (c) and 75 percent of other qualifying
dividends to the extent not otherwise allowed as a deduction or
eliminated from income. "Qualifying dividends" means those received
by the water's-edge group from corporations if both of the following
conditions are satisfied:
(1) The average of the property, payroll, and sales factors within
the United States for the corporation is less than 20 percent.
(2) More than 50 percent of the total combined voting power of all
classes of stock entitled to vote is owned directly or indirectly by
the water's-edge group.
(b) The water's-edge group consists of corporations whose income
and apportionment factors are taken into account pursuant to Section
25110.
(c) Dividends derived from a construction project, the location of
which is not subject to the taxpayer's control.
For purposes of this subdivision:
(1) "Construction project" means any activity which meets the
following requirements:
(A) Is undertaken for any entity, including a governmental entity,
which is not affiliated with the taxpayer.
(B) The majority of its cost of performance is attributable to an
addition to real property or an alteration of land or any improvement
thereto as those terms are utilized for purposes of this code.
"Construction project" does not include the operation, rental,
leasing, or depletion of real property, land, or any improvement
thereto.
(2) "Location of which is not subject to the taxpayer's control"
means that the place at which the majority of the construction takes
place results from the nature or character of the construction
project and not as a result of the terms of the contract or agreement
governing the construction project.

24414. (a) Section 195 of the Internal Revenue Code, relating to
startup expenditures, shall apply, except as otherwise provided.
(b) References to Sections 163(a), 164, 165, and 174 of the
Internal Revenue Code, relating to interest, taxes, losses, and
research and experimental expenditures, are modified to refer to
Sections 24344, 24345, 24347, and 24365, respectively.

24415. (a) To the extent specified in subdivision (b), there shall
be allowed as a deduction to a taxpayer those payments of the
taxpayer which are made pursuant to an interindemnity arrangement
specified in Section 1280.7 of the Insurance Code and which are paid
to a trust of members of a cooperative corporation organized and
operated under Part 2 (commencing with Section 12200) of Division 3
of Title 1 of the Corporations Code and the members of which consist
solely of physicians and surgeons licensed in this state.
(b) The deduction authorized by subdivision (a) shall be taken
with respect to the taxable year in which the payment is made and
shall be taken only to the extent that the payment does not exceed
the amount which would otherwise be payable to an independent
insurance company for similar coverage for medical malpractice
insurance in that taxable year. Any portion of the payment in excess
of that amount shall be treated as a payment under the interindemnity
arrangement for five succeeding taxable years and may be carried
forward as a deduction to those five succeeding taxable years until
used. The deduction shall be applied first to the earliest years
possible.
(c) In the event any payment is refunded by the trust to the
taxpayer for any reason, the payment shall be included in the
taxpayer's income for the taxable year in which it is received to the
extent that the payment or any portion thereof was taken as a
deduction in any earlier taxable year.
(d) Any refund of a payment which is made by a trust to a taxpayer
shall be reported by the trust to the Franchise Tax Board in the
year in which the refund is made. The trust shall furnish the
taxpayer with a copy of that report. In the case of any payment to be
made to a taxpayer who is not a resident of the State of California
in the year in which the refund is made, the Franchise Tax Board may,
by regulation, require the trust to withhold an amount from the
refund, determined by the Franchise Tax Board to reasonably represent
the amount of tax due when that refund is included with other income
of the taxpayer, and to transmit the amount withheld to the
Franchise Tax Board at a time as it may designate.
(e) For purposes of this section:
(1) "Payment" means a contribution to or an assessment by an
interindemnity arrangement described in Section 1280.7 of the
Insurance Code.
(2) "Taxpayer" means a corporation whose shares are held by a
physician and surgeon, or physicians and surgeons, licensed in this
state which is a participating member in an interindemnity
arrangement described in Section 1280.7 of the Insurance Code.
(3) "Trust" means a trust described in subdivision (a).
(f) Upon request, the trust shall submit to the Franchise Tax
Board the names and membership dates of all participating
corporations.
(g) The Franchise Tax Board shall prescribe those regulations as
may be necessary to carry out the purposes of this section.

24416.05. (a) In addition to the modifications made by Section
24416, the deduction provided by Section 172 of the Internal Revenue
Code, relating to net operating loss deduction, shall be modified as
follows:
(1) Section 172(b)(1)(J) of the Internal Revenue Code, relating to
certain losses attributable to federally declared disasters, shall
not apply.
(2) Section 172(j) of the Internal Revenue Code, relating to rules
relating to qualified disaster losses, shall not apply.
(b) This section shall be operative for taxable years beginning on
or after January 1, 2011.

24416.1. (a) A qualified taxpayer, as defined in Section 24416.2,
24416.4, 24416.5, 24416.6, or 24416.7, may elect to take the
deduction provided by Section 172 of the Internal Revenue Code,
relating to the net operating loss deduction, as modified by Section
24416, in computing net income under Section 24341, with the
following exceptions to Section 24416:
(1) Subdivision (a) of Section 24416, relating to years in which
allowable losses are sustained, shall not be applicable.
(2) Subdivision (b) of Section 24416, relating to the 50-percent
reduction of losses, shall not be applicable.
(3) The provisions of subparagraphs (B) and (C) of Section 172 (b)
(1) of the Internal Revenue Code shall not apply. To the extent
applicable to California law, net operating losses attributable to
entities with losses described by Section 172(b)(1)(J) shall be
applied in accordance with Section 172(b)(1)(A) and (B) of the
Internal Revenue Code.
(b) Corporations whose income is subject to the provisions of
Section 25101 or 25101.15 shall make the computations required by
Section 25108.
(c) The election to compute the net operating loss under this
section shall be made in a statement attached to the original return,
timely filed for the year in which the net operating loss is
incurred and shall be irrevocable. In addition to the exceptions
specified in subdivision (a), Section 24416.2, 24416.4, 24416.5,
24416.6, or 24416.7, as appropriate, shall be applicable.
(d) Any carryover of a net operating loss sustained by a qualified
taxpayer, as defined in subdivision (a) or (b) of Section 24416.2 as
that section read immediately prior to January 1, 1997, shall, if
previously elected, continue to be a deduction, as provided in
subdivision (a), applied as if the provisions of subdivision (a) or
(b) of Section 24416.2, as that section read prior to January 1,
1997, still applied.

24416.2. (a) The term "qualified taxpayer" as used in Section
24416.1 includes a corporation engaged in the conduct of a trade or
business within an enterprise zone designated pursuant to Chapter
12.8 (commencing with Section 7070) of Division 7 of Title 1 of the
Government Code. For purposes of this subdivision, all of the
following shall apply:
(1) A net operating loss shall not be a net operating loss
carryback for any taxable year and a net operating loss for any
taxable year beginning on or after the date that the area in which
the taxpayer conducts a trade or business is designated as an
enterprise zone shall be a net operating loss carryover to each of
the 15 taxable years following the taxable year of loss.
(2) For purposes of this subdivision:
(A) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 24416.1,
attributable to the taxpayer's business activities within the
enterprise zone (as defined in Chapter 12.8 (commencing with Section
7070) of Division 7 of Title 1 of the Government Code) prior to the
enterprise zone expiration date. That attributable loss shall be
determined in accordance with Chapter 17 (commencing with Section
25101), modified for purposes of this subdivision as follows:
(i) Loss shall be apportioned to the enterprise zone by
multiplying total loss from the business by a fraction, the numerator
of which is the property factor plus the payroll factor, and the
denominator of which is two.
(ii) "The enterprise zone" shall be substituted for "this state."
(B) A net operating loss carryover shall be a deduction only with
respect to the taxpayer's business income attributable to the
enterprise zone as defined in Chapter 12.8 (commencing with Section
7070) of Division 7 of Title 1 of the Government Code.
(C) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the
enterprise zone. For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101). That
business income shall be further apportioned to the enterprise zone
in accordance with Article 2 (commencing with Section 25120) of
Chapter 17, modified for purposes of this subdivision as follows:
(i) Business income shall be apportioned to the enterprise zone by
multiplying the total California business income of the taxpayer by
a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this clause:
(I) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the enterprise zone during the
taxable year, and the denominator of which is the average value of
all the taxpayer's real and tangible personal property owned or
rented and used in this state during the taxable year.
(II) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the enterprise zone during
the taxable year for compensation, and the denominator of which is
the total compensation paid by the taxpayer in this state during the
taxable year.
(ii) If a loss carryover is allowable pursuant to this section for
any taxable year after the enterprise zone designation has expired,
the enterprise zone shall be deemed to remain in existence for
purposes of computing the limitation set forth in subparagraph (B)
and allowing a net operating loss deduction.
(D) "Enterprise zone expiration date" means the date the
enterprise zone designation expires, is no longer binding, or becomes
inoperative.
(3) The changes made to this subdivision by the act adding this
paragraph shall apply to taxable years beginning on or after January
1, 1998.
(b) A taxpayer who qualifies as a "qualified taxpayer" under one
or more sections shall, for the taxable year of the net operating
loss and any taxable year to which that net operating loss may be
carried, designate on the original return filed for each year the
section which applies to that taxpayer with respect to that net
operating loss. If the taxpayer is eligible to qualify under more
than one section, the designation is to be made after taking into
account subdivision (c).
(c) If a taxpayer is eligible to qualify under this section and
either Section 24416.4, 24416.5, or 24416.6 as a "qualified taxpayer,"
with respect to a net operating loss in a taxable year, the taxpayer
shall designate which section is to apply to the taxpayer.
(d) Notwithstanding Section 24416, the amount of the loss
determined under this section, or Section 24416.4, 24416.5, or
24416.6 shall be the only net operating loss allowed to be carried
over from that taxable year and the designation under subdivision (b)
shall be included in the election under Section 24416.1.

24416.3. (a) Notwithstanding Sections 24416, 24416.1, 24416.2,
24416.4, 24416.5, 24416.6, and 24416.7 of this code and Section 172
of the Internal Revenue Code, no net operating loss deduction shall
be allowed for any taxable year beginning on or after January 1,
2002, and before January 1, 2004.
(b) For any carryover of a net operating loss for which a
deduction is denied by subdivision (a), the carryover period under
Section 172 of the Internal Revenue Code shall be extended as
follows:
(1) By one year, for losses incurred in taxable years beginning on
or after January 1, 2002, and before January 1, 2003.
(2) By two years, for losses incurred in taxable years beginning
before January 1, 2002.

24416.4. (a) The term "qualified taxpayer" as used in Section
24416.1 includes a corporation engaged in the conduct of a trade or
business within the Los Angeles Revitalization Zone designated
pursuant to Section 7102 of the Government Code. For purposes of this
subdivision, all of the following shall apply:
(1) A net operating loss shall not be a net operating loss
carryback for any taxable year and, except as provided in
subparagraph (B), a net operating loss for any taxable year beginning
on or after the date the area in which the taxpayer conducts a trade
or business is designated the Los Angeles Revitalization Zone shall
be a net operating loss carryover to each following taxable year that
ends before the Los Angeles Revitalization Zone expiration date or
to each of the 15 taxable years following the taxable year of loss,
if longer.
(2) In the case of a financial institution to which Section 585,
586, or 593 of the Internal Revenue Code applies, a net operating
loss for any taxable year beginning on or after January 1, 1984,
shall be a net operating loss carryover to each of the five years
following the taxable year of the loss. Subdivision (b) of Section
24416.1 shall not apply.
(3) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 24416.1,
attributable to the taxpayer's business activities within the Los
Angeles Revitalization Zone (as defined in Section 7102 of the
Government Code) prior to the Los Angeles Revitalization Zone
expiration date. The attributable loss shall be determined in
accordance with Chapter 17 (commencing with Section 25101) of Part
11, modified as follows:
(A) The loss shall be apportioned to the Los Angeles
Revitalization Zone by multiplying the loss from the business by a
fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is 2.
(B) "The Los Angeles Revitalization Zone" shall be substituted for
"this state."
(4) A net operating loss carryover shall be a deduction only with
respect to the taxpayer's business income attributable to the Los
Angeles Revitalization Zone (as defined in Section 7102 of the
Government Code) determined in accordance with subdivision (c).
(5) If a loss carryover is allowable pursuant to this section for
any taxable year after the Los Angeles Revitalization Zone
designation has expired, the Los Angeles Revitalization Zone shall be
deemed to remain in existence for purposes of computing the
limitation set forth in paragraph (2) and allowing a net operating
loss deduction.
(6) Attributable income shall be that portion of the taxpayer's
California source business income which is apportioned to the Los
Angeles Revitalization Zone. For that purpose, the taxpayer's
business income attributable to sources in this state first shall be
determined in accordance with Chapter 17 (commencing with Section
25101). That business income shall be further apportioned to the Los
Angeles Revitalization Zone in accordance with Article 2 (commencing
with Section 25120) of Chapter 17, modified as follows:
(A) Business income shall be apportioned to the Los Angeles
Revitalization Zone by multiplying total California business income
of the taxpayer by a fraction, the numerator of which is the property
factor plus the payroll factor, and the denominator of which is 2.
(B) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the Los Angeles Revitalization
Zone during the taxable year and the denominator of which is the
average value of all the taxpayer's real and tangible personal
property owned or rented and used in this state during the taxable
year.
(C) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the Los Angeles
Revitalization Zone during the taxable year for compensation, and the
denominator of which is the total compensation paid by the taxpayer
in this state during the taxable year.
(7) "Los Angeles Revitalization Zone expiration date" means the
date the Los Angeles Revitalization Zone designation expires, is
repealed, or becomes inoperative pursuant to Section 7102, 7103, or
7104 of the Government Code.
(b) This section shall be inoperative on the first day of the
taxable year beginning on or after the determination date, and each
taxable year thereafter, with respect to the taxpayer's business
activities within a geographic area that is excluded from the map
pursuant to Section 7102 of the Government Code, or an excluded area
determined pursuant to Section 7104 of the Government Code. The
determination date is the earlier of the first effective date of a
determination under subdivision (c) of Section 7102 of the Government
Code occurring after December 1, 1994, or the first effective date
of an exclusion of an area from the amended Los Angeles
Revitalization Zone under Section 7104 of the Government Code.
However, if the taxpayer has any unused loss amount as of the date
this section becomes inoperative, that unused loss amount may
continue to be carried forward as provided in this section.
(c) A taxpayer who qualifies as a "qualified taxpayer" under one
or more sections shall, for the taxable year of the net operating
loss and any taxable year to which that net operating loss may be
carried, designate on the original return filed for each year the
section that applies to that taxpayer with respect to that net
operating loss. If the taxpayer is eligible to qualify under more
than one section, the designation is to be made after taking into
account subdivision (d).
(d) If a taxpayer is eligible to qualify under this section and
either Section 24416.2, 24416.5, or 24416.6 as a "qualified taxpayer,"
with respect to a net operating loss in a taxable year, the taxpayer
shall designate which section is to apply to the taxpayer.
(e) Notwithstanding Section 24416, the amount of the loss
determined under this section or Section 24416.2, 24416.5, or 24416.6
shall be the only net operating loss allowed to be carried over from
that taxable year and the designation under subdivision (c) shall be
included in the election under Section 24416.1.
(f) This section shall cease to be operative on December 1, 1998.
However, any unused net operating loss may continue to be carried
over to following years as provided in this section.

24416.5. (a) For each taxable year beginning on or after January 1,
1995, the term "qualified taxpayer" as used in Section 24416.1
includes a taxpayer engaged in the conduct of a trade or business
within a LAMBRA. For purposes of this subdivision, all of the
following shall apply:
(1) A net operating loss shall not be a net operating loss
carryback for any taxable year and, except as provided in
subparagraph (B), a net operating loss for any taxable year beginning
on or after the date the area in which the taxpayer conducts a trade
or business is designated a LAMBRA shall be a net operating loss
carryover to each following taxable year that ends before the LAMBRA
expiration date or to each of the 15 taxable years following the
taxable year of loss, if longer.
(2) In the case of a financial institution to which Section 585,
586, or 593 of the Internal Revenue Code applies, a net operating
loss for any taxable year beginning on or after January 1, 1984,
shall be a net operating loss carryover to each of the five years
following the taxable year of the loss. Subdivision (b) of Section
24416.1 shall not apply.
(3) "LAMBRA" means a local agency military base recovery area
designated in accordance with Section 7114 of the Government Code.
(4) "Taxpayer" means a bank or corporation that conducts a trade
or business within a LAMBRA and, for the first two taxable years, has
a net increase in jobs (defined as 2,000 paid hours per employee per
year) of one or more employees in the LAMBRA and this state. For
purposes of this paragraph, all of the following shall apply:
(A) The net increase in the number of jobs shall be determined by
subtracting the total number of full-time employees (defined as 2,000
paid hours per employee per year) the taxpayer employed in this
state in the taxable year prior to commencing business operations in
the LAMBRA from the total number of full-time employees the taxpayer
employed in this state during the second taxable year after
commencing business operations in the LAMBRA. For taxpayers who
commence doing business in this state with their LAMBRA business
operation, the number of employees for the taxable year prior to
commencing business operations in the LAMBRA shall be zero. The
deduction shall be allowed only if the taxpayer has a net increase in
jobs in the state, and if one or more full-time employees are
employed within the LAMBRA.
(B) The total number of employees employed in the LAMBRA shall
equal the sum of both of the following:
(i) The total number of hours worked in the LAMBRA for the
taxpayer by employees (not to exceed 2,000 hours per employee) who
are paid an hourly wage divided by 2,000.
(ii) The total number of months worked in the LAMBRA for the
taxpayer by employees who are salaried employees divided by 12.
(C) In the case of a taxpayer that first commences doing business
in the LAMBRA during the taxable year, for purposes of clauses (i)
and (ii), respectively, of subparagraph (B) the divisors "2,000" and
"12" shall be multiplied by a fraction, the numerator of which is the
number of months of the taxable year that the taxpayer was doing
business in the LAMBRA and the denominator of which is 12.
(5) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 24416.1,
attributable to the taxpayer's business activities within a LAMBRA
prior to the LAMBRA expiration date. The attributable loss shall be
determined in accordance with Chapter 17 (commencing with Section
25101), modified for purposes of this section as follows:
(A) Loss shall be apportioned to a LAMBRA by multiplying total
loss from the business by a fraction, the numerator of which is the
property factor plus the payroll factor, and the denominator of which
is 2.
(B) "The LAMBRA" shall be substituted for "this state."
(6) A net operating loss carryover shall be a deduction only with
respect to the taxpayer's business income attributable to a LAMBRA.
(7) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the LAMBRA.
For that purpose, the taxpayer's business income attributable to
sources in this state first shall be determined in accordance with
Chapter 17 (commencing with Section 25101). That business income
shall be further apportioned to the LAMBRA in accordance with Article
2 (commencing with Section 25120) of Chapter 17, modified as
follows:
(A) Business income shall be apportioned to a LAMBRA by
multiplying total California business income of the taxpayer by a
fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this clause:
(i) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the LAMBRA during the taxable
year, and the denominator of which is the average value of all the
taxpayer's real and tangible personal property owned or rented and
used in this state during the taxable year.
(ii) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the LAMBRA during the
taxable year for compensation, and the denominator of which is the
total compensation paid by the taxpayer in this state during the
taxable year.
(B) If a loss carryover is allowable pursuant to this section for
any taxable year after the LAMBRA designation has expired, the LAMBRA
shall be deemed to remain in existence for purposes of computing the
limitation specified in subparagraph (D) and allowing a net
operating loss deduction.
(8) "LAMBRA expiration date" means the date the LAMBRA designation
expires, is no longer binding, or becomes inoperative pursuant to
Section 7110 of the Government Code.
(b) A taxpayer who qualifies as a "qualified taxpayer" under one
or more sections shall, for the taxable year of the net operating
loss and any taxable year to which that net operating loss may be
carried, designate on the original return filed for each year the
section that applies to that taxpayer with respect to that net
operating loss. If the taxpayer is eligible to qualify under more
than one section, the designation is to be made after taking into
account subdivision (c).
(c) If a taxpayer is eligible to qualify under this section and
either Section 24416.2, 24416.4, or 24416.6 as a "qualified taxpayer,"
with respect to a net operating loss in a taxable year, the taxpayer
shall designate which section is to apply to the taxpayer.
(d) Notwithstanding Section 24416, the amount of the loss
determined under this section or Section 24416.2, 24416.4, or 24416.6
shall be the only net operating loss allowed to be carried over from
that taxable year and the designation under subdivision (b) shall be
included in the election under Section 24416.1.
(e) This section shall apply to taxable years beginning on and
after January 1, 1998.

24416.6. (a) For each taxable year beginning on or after January 1,
1998, the term "qualified taxpayer" as used in Section 24416.1
includes a corporation that meets both of the following:
(1) Is engaged in the conduct of a trade or business within a
targeted tax area designated pursuant to Chapter 12.93 (commencing
with Section 7097) of Division 7 of Title 1 of the Government Code.
(2) Is engaged in those lines of business described in Codes 2000
to 2099, inclusive; 2200 to 3999, inclusive; 4200 to 4299, inclusive;
4500 to 4599, inclusive; and 4700 to 5199, inclusive, of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition. In the
case of any pass-through entity, the determination of whether a
taxpayer is a qualified taxpayer shall be made at the entity level.
(b) For purposes of subdivision (a), all of the following shall
apply:
(1) A net operating loss shall not be a net operating loss
carryback for any taxable year and a net operating loss for any
taxable year beginning on or after the date that the area in which
the qualified taxpayer conducts a trade or business is designated as
a targeted tax area shall be a net operating loss carryover to each
of the 15 taxable years following the taxable year of loss.
(2) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 24416.1,
attributable to the qualified taxpayer's business activities within
the targeted tax area (as defined in Chapter 12.93 (commencing with
Section 7097) of Division 7 of Title 1 of the Government Code) prior
to the targeted tax area expiration date. That attributable loss
shall be determined in accordance with Chapter 17 (commencing with
Section 25101), modified for purposes of this section as follows:
(A) Loss shall be apportioned to the targeted tax area by
multiplying total loss from the business by a fraction, the numerator
of which is the property factor plus the payroll factor, and the
denominator of which is 2.
(B) "The targeted tax area" shall be substituted for "this state."
(3) A net operating loss carryover shall be a deduction only with
respect to the qualified taxpayer's business income attributable to
the targeted tax area as defined in Chapter 12.93 (commencing with
Section 7097) of Division 7 of Title 1 of the Government Code.
(4) Attributable income is that portion of the taxpayer's
California source business income that is apportioned to the targeted
tax area. For that purpose, the taxpayer's business income
attributable to sources in this state first shall be determined in
accordance with Chapter 17 (commencing with Section 25101). That
business income shall be further apportioned to the targeted tax area
in accordance with Article 2 (commencing with Section 25120) of
Chapter 17, modified for purposes of this subdivision as follows:
(A) Business income shall be apportioned to the targeted tax area
by multiplying the total California business income of the taxpayer
by a fraction, the numerator of which is the property factor plus the
payroll factor, and the denominator of which is two. For purposes of
this clause:
(i) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the targeted tax area during the
taxable year, and the denominator of which is the average value of
all the taxpayer's real and tangible personal property owned or
rented and used in this state during the taxable year.
(ii) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the targeted tax area during
the taxable year for compensation, and the denominator of which is
the total compensation paid by the taxpayer in this state during the
taxable year.
(B) If a loss carryover is allowable pursuant to this subdivision
for any taxable year after the targeted tax area expiration date, the
targeted tax area designation shall be deemed to remain in existence
for purposes of computing the limitation specified in subparagraph
(B) and allowing a net operating loss deduction.
(5) "Targeted tax area expiration date" means the date the
targeted tax area designation expires, is revoked, is no longer
binding, or becomes inoperative.
(c) A taxpayer who qualifies as a "qualified taxpayer" under one
or more sections shall, for the taxable year of the net operating
loss and any taxable year to which that net operating loss may be
carried, designate on the original return filed for each year the
section that applies to that taxpayer with respect to that net
operating loss. If the taxpayer is eligible to qualify under more
than one section, the designation is to be made after taking into
account subdivision (e).
(d) If a taxpayer is eligible to qualify under this section and
either Section 24416.2, 24416.4, or 24416.5 as a "qualified taxpayer,"
with respect to a net operating loss in a taxable year, the taxpayer
shall designate which section is to apply to the taxpayer.
(e) Notwithstanding Section 24416, the amount of the loss
determined under this section or Section 24416.2, 24416.4, or 24416.5
shall be the only net operating loss allowed to be carried over from
that taxable year and the designation under subdivision (c) shall be
included in the election under Section 24416.1.
(f) This section shall apply to taxable years beginning on or
after January 1, 1998.

24416.7. (a) The term "qualified taxpayer" as used in Section
24416.1 includes a corporation that conducts a farming business that
is directly affected by Pierce's disease and its vectors. For
purposes of this subdivision, all of the following shall apply:
(1) A net operating loss shall not be a net operating loss
carryback to any taxable year, and a net operating loss for any
taxable year beginning on or after the date that the area in which
the taxpayer conducts a farming business is affected by Pierce's
disease and its vectors shall be a net operating loss carryover to
each of the nine taxable years following the taxable year of loss,
until used.
(2) For purposes of this subdivision:
(A) "Net operating loss" means the loss determined under Section
172 of the Internal Revenue Code, as modified by Section 24416.1,
attributable to the taxpayer's farming business activities affected
by Pierce's disease and its vectors. That attributable loss shall be
determined in accordance with Chapter 17 (commencing with Section
25101) of Part 11, modified for purposes of this subdivision, as
follows:
(i) A loss shall be apportioned to the area affected by Pierce's
disease and its vectors by multiplying the total loss from the
farming business by a fraction, the numerator of which is the
property factor plus the payroll factor, and the denominator of which
is two.
(ii) "The area affected by Pierce's disease and its vectors" shall
be substituted for "this state."
(B) A net operating loss carryover computed under this section
shall be allowed as a deduction only with respect to the taxpayer's
farming business income attributable to the area affected by Pierce's
disease and its vectors.
(C) Attributable income is that portion of the taxpayer's
California source farming business income that is apportioned to the
area affected by Pierce's disease and its vectors. For that purpose,
that taxpayer's farming business income attributable to sources in
this state first shall be determined in accordance with Chapter 17
(commencing with Section 25101) of Part 11. That farming business
income shall be further apportioned to the area affected by Pierce's
disease and its vectors in accordance with Article 2 (commencing with
Section 25120) of Chapter 17 of Part 11, modified for purposes of
this subdivision as follows:
(i) Farming business income shall be apportioned to the area
affected by Pierce's disease and its vectors by multiplying the total
California farming business income of the taxpayer by a fraction,
the numerator of which is the property factor plus the payroll
factor, and the denominator of which is two. For purposes of this
paragraph:
(I) The property factor is a fraction, the numerator of which is
the average value of the taxpayer's real and tangible personal
property owned or rented and used in the area affected by Pierce's
disease and its vectors during the taxable year, and the denominator
of which is the average value of all the taxpayer's real and tangible
personal property owned or rented and used in this state during the
taxable year.
(II) The payroll factor is a fraction, the numerator of which is
the total amount paid by the taxpayer in the area affected by Pierce'
s disease and its vectors during the taxable year for compensation,
and the denominator of which is the total compensation paid by the
taxpayer in this state during the taxable year.
(ii) If a loss carryover is allowable pursuant to this section for
any taxable year after Pierce's disease and its vectors occurred,
the area affected by Pierce's disease and its vectors shall be deemed
to remain in existence for purposes of computing the limitation set
forth in subparagraph (B) and allowing a net operating loss
deduction.
(b) A taxpayer who qualifies as a "qualified taxpayer" under one
or more sections shall, for the taxable year of the net operating
loss and any taxable year to which that net operating loss may be
carried, designate on the original return filed f