Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2011
 

Tax on Insurers Law

Chapter 3. All Insurance Other Than Ocean Marine.



Chapter 3. All Insurance Other Than Ocean Marine.

Article 1. General*

* The title of Article 1. Tax Base, commencing with former Section 12251 was amended to its present form by Stats. 1961, p. 1981, operative January 1, 1962.

Text of section operative through deletionJune 30, 2010

12201. Annual tax. (a) Every insurer and Medi-Cal managed care plan doing business in this state shall annually pay to the state a tax on the bases, at the rates, and subject to the deductions from the tax hereinafter specified. For purposes of the tax imposed by this chapter, "insurer" shall be deemed to include a home protection company as defined in Section 12740 of the Insurance Code.

(b) Notwithstanding Section 13340 of the Government Code, the revenues derived from the imposition of the tax by this chapter on Medi-Cal managed care plans are hereby continuously appropriated as follows:

(1) To the State Department of Health Care Services for purposes of the Medi-Cal program in an amount equal to 38.41 percent of the total revenues derived from the imposition of the tax by this chapter on Medi-Cal managed care plans.

(2) To the Managed Risk Medical Insurance Board for purposes of the Healthy Families Program in an amount equal to 61.59 percent of the total revenues derived from the imposition of the tax by this chapter on Medi-Cal managed care plans.

(c) For purposes of imposing the tax on Medi-Cal managed care plans during the 2009 calendar year, the tax shall be based on total revenue for the period of January 1, 2009, to December 31, 2009, inclusive.

(d) The Insurance Commissioner shall report the amount of revenue derived from the tax imposed on Medi-Cal managed care plans pursuant to this section to the California Health and Human Services Agency, the Joint Legislative Budget Committee, and the Department of Finance.

deletion(e) This section shall become inoperative on July 1, 2010, and, as of January 1, 2011, is repealed, unless a later enacted statute, that becomes operative on or before January 1, 2011, deletes or extends the dates on which it becomes inoperative and is repealed.

History.—Stats. 1961, p. 1981, operative January 1, 1962, renumbered former Section 12251 as Section 12201 without other change. Stats. 1981, Ch. 820, in effect January 1, 1982, added the second sentence. Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009, added "and Medi-Cal managed care plan" after "Every insurer" in subdivision (a); and added subdivisions (b), (c), (d) and (e). Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, deleted former subdivision (e) which provided that "This section shall remain in effect only until January 1, 2011, and as of that date is repealed." and added a new subdivision (e).

Excise tax.—The tax imposed upon insurance companies is not a property tax but an excise tax for the privilege of doing business in the year preceding that in which the tax is assessed. Consequently, an insurance company is liable for a tax based upon its gross premiums received during a calendar year, notwithstanding the fact that on the first Monday of March of the following year the company was not doing business. Penalties accruing after the appointment of a liquidator are properly charged to the company. Carpenter v. Peoples Mutual Life Insurance Co. (1937) 10 Cal.2d 299.

Doing business.—Foreign insurers who solicited business by mail from outside the state were "doing business" in California. The insurers' resident agents, even though designated as independent contractors, performed functions in this state on behalf of the insurers sufficient to form the "definite link" and "minimum connection" required to justify imposition of the tax on the insurers. Illinois Com. Mens Assn. v. State Board of Equalization (1983) 34 Cal.3d 839, appeal dismissed (1984) 466 U.S. 933.

Text of section operative July 1, 2010, through June 30, 2011

12201. Annual tax. ((a) Every insurer and Medi-Cal managed care plan doing business in this state shall annually pay to the state a tax on the bases, at the rates, and subject to the deductions from the tax hereinafter specified. For purposes of the tax imposed by this chapter, "insurer" shall be deemed to include a home protection company as defined in Section 12740 of the Insurance Code.

(b) Notwithstanding Section 13340 of the Government Code, the revenues derived from the imposition of the tax by this chapter on Medi-Cal managed care plans are hereby continuously appropriated as follows:

(1) A percentage of the revenues derived from the imposition of the tax by this chapter on Medi-Cal managed care plans equal to the difference between 100 percent and the applicable federal medical assistance percentage (FMAP) to the department for purposes of the Medi-Cal program.

(2) After deducting the revenues appropriated pursuant to paragraph (1), any remaining revenue to the Managed Risk Medical Insurance Board for purposes of the Healthy Families Program.

(c) The Insurance Commissioner shall report the amount of revenue derived from the tax imposed on Medi-Cal managed care plans pursuant to this section to the California Health and Human Services Agency, the Joint Legislative Budget Committee, and the Department of Finance.

(d) This section shall become operative on July 1, 2010.

(e) This section shall become inoperative on July 1, 2011, and, as of January 1, 2012, is repealed, unless a later enacted statute, that becomes operative on or before January 1, 2012, deletes or extends the dates on which it becomes inoperative and is repealed.

History.—Added by Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010.

Text of section operative deletionJuly 1, 2011

12201. Annual tax. (a) Every insurer doing business in this state shall annually pay to the state a tax on the bases, at the rates, and subject to the deductions from the tax hereinafter specified. For purposes of the tax imposed by this chapter, "insurer" shall be deemed to include a home protection company as defined in Section 12740 of the Insurance Code.

(b) This section shall become operative on deletionJuly 1, 2011.

History.—Added by Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009. Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, substituted "July 1, 2011" for "January 1, 2011" after "operative on" in subdivision (b).

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12202. Rate of tax. The rate of tax to be applied to the basis of the annual tax in respect to each year is 2.35 percent except the rate to be applied to the basis in respect to the years 1982, 1983, 1984, and 1985 is 2.33 percent and except that as to gross premiums received upon policies or contractsissued in connection with a pension plan or profit-sharing plan exempt or qualified under Section 401(a), 403(b), 404, 408(b), or 501(a) of the United States Internal Revenue Code as they may be amended or renumbered from time to time, the rate of tax shall be the percentage set forth below opposite each year:

Year

Percentage

1960

2.15

1961

1.95

1962

1.75

1963

1.55

1964

1.35

1965 through 1968

1.00

1969 and each year thereafter

0.50

History.—Stats. 1961, p. 1981, operative January 1, 1962, renumbered former Section 12256 as Section 12202 without other change. Stats. 1963, p. 5009 (Extra Session), in effect October 31, 1963, added the words "the rate to be applied to the basis in respect to the years 1964, 1965, 1966, and 1967 is 2.33 percent and." Stats. 1968, p. 2567, in effect November 13, 1968, added "403(b)". Stats. 1969, p. 2976, in effect November 10, 1969, added the provision for the 0.50% rate to the table. Stats. 1976, Ch. 534, operative August 22, 1976, added "408(b)". Stats. 1982, Ch. 327, in effect June 30, 1982, substituted "1982, 1983, 1984, and 1985" for "1964, 1965, 1966, and 1967" before "is 2.33".

Reduced rate.—The reduced rate of Revenue and Taxation Code section 12202 applies only to premiums satisfying both requirements of that section: 1) they must be from policies or contracts issued to pension or profit-sharing plans; and 2) those plans must be exempt or qualified under Internal Revenue Code section 401(a), 403(b), 404, 408(b) or 501(a). Transamerica Occidental Life Ins. Co. v. State Board of Equalization (1991) 232 Cal.App.3d 1048.

12202.1. Adjustment of rate of tax. Notwithstanding the rate specified by Section 12202, the gross premiums tax rate paid by insurers for any premiums collected between November 8, 1988 and January 1, 1991 shall be adjusted by the Board of Equalization in January of each year so that the gross premiums tax revenues collected for each prior calendar year shall be sufficient to compensate for changes in such revenues, if any, including changes in anticipated revenues, arising from this act. In calculating the necessary adjustment, the Board of Equalization shall consider the growth in premiums in the most recent three year period, and the impact of general economic factors including, but not limited to, the inflation and interest rates.

History.—Adopted by voters, Prop 103, Sec. 6, in effect November 8, 1988.

Prepayment judicial review denied.—Article XIII, section 32 of the California Constitution prohibits the court from considering the challenge against this provision prior to the payment of tax, if any, assessed under its provisions. Calfarm Insurance Co. v. Deukmejian (1989) 48 Cal.3d 805.

Section 12202.1 constitutional.—This section is a proper delegation of legislative power to an administrative agency, and the constitutional grant of power to the Legislature in article XIII, section 28, subdivision (i), entails a similar grant of power to the electorate to legislate through the initiative process. State Compensation Insurance Fund v. State Board of Equalization (1993) 14 Cal.App.4th 1295.

Tax rates.—The rate set by the Board for 1989 was valid since the Board considered the three statutory factors, but the rate set for 1990 was invalid because the Board did not consider one of the statutory factors. The proper remedy was not to order a refund, but instead to remand to the Board to properly set the rate for 1990 by considering all the factors set forth in the statute. Pacific Mutual Life Insurance Co. v. State Board of Equalization (1996) 41 Cal.App.4th 1153.

12203. State Compensation Insurance Fund subject to tax. The State Compensation Insurance Fund shall annually pay a tax computed on the same bases, at the same rates, and subject to the same deductions specified in this chapter, as those applicable to private insurers.

History.—Stats. 1961, p. 1982, operative January 1, 1962, amended and renumbered former Section 12264 as Section 12203 and changed "article" to "chapter." Stats. 1951, p. 2447 amending Sections 202, 12003 and former Section 12264 of the Revenue and Taxation Code, provides that if any one of its provisions is held invalid the remainder of the act shall also be deemed invalid.

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Text of section operative through deletionJune 30, 2011

12204. In lieu of other taxes; exceptions. (a) The tax imposed on insurers by this chapter is in lieu of all other taxes and licenses, state, county, and municipal, upon those insurers and their property, except:

(1) Taxes upon their real estate.

(2) Any retaliatory exactions imposed by paragraph (3) of subdivision (f) of Section 28 of Article XIII of the Constitution.

(3) The tax on ocean marine insurance.

(4) Motor vehicle and other vehicle registration license fees and any other tax or license fee imposed by the state upon vehicles, motor vehicles or the operation thereof.

(5) That each corporate or other attorney-in-fact of a reciprocal or interinsurance exchange shall be subject to all taxes imposed upon corporations or others doing business in the state, other than taxes on income derived from its principal business as attorney-in-fact.

(b) This section shall not apply to any Medi-Cal managed care plan and to any tax imposed on that plan by this chapter.

deletion(c) This section shall become inoperative on July 1, 2011, and, as of January 1, 2012, is repealed, unless a later enacted statute, that becomes operative on or before January 1, 2012, deletes or extends the dates on which it becomes inoperative and is repealed.

History.—Stats. 1961, p. 1982, operative January 1, 1962, amended and renumbered former Section 12263 as Section 12204. Subdivisions (a), (b) and (d) correspond to subdivisions (1), (2) and (3) of the former section. Subdivisions (c) and (e) were added by Stats. 1961, p. 1982. Stats. 1967, p. 2600, in effect November 8, 1967, deleted "the Legislature pursuant to" following "imposed by" in (c) and added (f). Stats. 1974, p. 620, operative November 6, 1974, substituted "Section 28" for "Section 144/5." Stats. 1996, Ch. 1063, in effect January 1, 1997, deleted subdivision (b) which read "That an insurer transacting title insurance in this state which has a trust department or does a trust business under the banking laws of this state is subject to taxation with respect to such trust department or trust business to the same extent and in the same manner as trust companies and the trust departments of banks doing business in this state." and relettered former subdivisions (c), (d), (e), and (f) as (b), (c), (d), and (e), respectively. Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009, designated first sentence as subdivision (a) and substituted "those" for "such" after "municipal, upon" in subdivision (a); redesignated former subdivisions (a), (b), (c), (d), and (e) as paragraphs (1), (2), (3), (4), and (5), respectively, in subdivision (a); and added subdivisions (b) and (c). Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, replaced "attorney in fact" with "attorney-in-fact" two times in paragraph (5) of subdivision (a) and deleted former subdivision (c) which provided that "This section shall remain in effect only until January 1, 2011, and as of that date is repealed." and added a new subdivision (c).

In lieu tax.—Although in lieu of taxes on personal property, it is not like the former public utility gross receipts tax, a direct tax on property, but is a franchise tax exacted for the privilege of doing business in the State. Thus, ownership by the insurance company, and not the use to which the property is being put, is the factor determining freedom of personal property from local taxation. Consolidated Title Security Co. v. Hopkins (1934) 1 Cal.2d 414.

The "in lieu" provision of Article XIII Section 144/5 (now Article XIII Section 28) does not prevent the application of the state franchise tax to the net income of a corporate insurance agent. The franchise tax is exacted for the privilege of doing business in a corporate capacity. Edward Brown & Sons v. McColgan (1942) 53 Cal.App.2d 504.

A revenue ordinance imposing a tax on a person engaged in the business of soliciting, effecting and negotiating undertakings of bail as an agent of an insurance company is invalid. Groves v. City of Los Angeles (1949) 93 Cal.App.2d 17; Groves v. City of Los Angeles (1953) 40 Cal.2d 751.

The city business license tax applies to commissions received by an insurance broker. Marsh & McClennan of California, Inc. v. City of Los Angeles (1976) 62 Cal.App.3d 108.

The legal incidence of the sales tax is on the retailer even if the retailer passes the amount of the tax through to its customers. The in lieu provisions therefore do not prevent the imposition of sales tax on a retailer with respect to sales to insurance companies. Occidental Life Ins. Co. v. State Board of Equalization (1982) 135 Cal.App.3d 845.

An insurer doing insurance business in California subject to California's gross premiums tax is exempt from all other state and local taxes except those listed in the "in lieu" provision. Mutual Life Ins. Co. v. City of Los Angeles (1990) 50 Cal.3d 402 (disapproving Massachusetts Mutual Life Ins. Co. v. City and County of San Francisco (1982) 129 Cal.App.3d 876).

Trust business of title companies.—The levy of a franchise tax on the trust business of a title insurance company for 1943 measured by the income of its trust business in 1942 is not a tax upon its 1942 trust business in violation of the effective date, December 31, 1942, of Section 144/5 of Article XIII, California Constitution. Title Insurance and Trust Co. v. Franchise Tax Board (1956) 145 Cal.App.2d 60.

Text of section operative deletionJuly 1, 2011

12204. In lieu of other taxes; exceptions. (a) The tax imposed on insurers by this chapter is in lieu of all other taxes and licenses, state, county, and municipal, upon those insurers and their property, except:

(1) Taxes upon their real estate.

(2) Any retaliatory exactions imposed by paragraph (3) of subdivision (f) of Section 28 of Article XIII of the California Constitution.

(3) The tax on ocean marine insurance.

(4) Motor vehicle and other vehicle registration license fees and any other tax or license fee imposed by the state upon vehicles, motor vehicles or the operation thereof.

(5) That each corporate or other attorney-in-fact of a reciprocal or interinsurance exchange shall be subject to all taxes imposed upon corporations or others doing business in the state, other than taxes on income derived from its principal business as attorney-in-fact.

(b) This section shall become operative on deletionJuly 1, 2011.

History.—Added by Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009, but operative on January 1, 2011. Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, replaced "attorney in fact" with "attorney-in-fact" two times in paragraph (5) of subdivision (a) and substituted "July 1, 2011" for "January 1, 2011" after "operative on" in subdivision (b).

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12205. Legislative intent. It is the intent of the Legislature that the amount of the state low-income housing tax credit allocated to a project pursuant to Section 12206 shall not exceed an amount in addition to the federal tax credit that is necessary for the financial feasibility of the project and its viability throughout the extended use period.

History.—Added by Stats. 1993, Ch. 1222, in effect October 11, 1993.

12206. Low income housing tax credit. (a) (1) There shall be allowed as a credit against the "tax" (as defined by Section 12201) a state low- income housing tax credit in an amount equal to the amount determined in subdivision (c), computed in accordance with Section 42 of the Internal Revenue Code, except as otherwise provided in this section.

(2) "Taxpayer," for purposes of this section, means the sole owner in the case of a "C" corporation, the partners in the case of a partnership, and the shareholders in the case of an "S" corporation.

(3) "Housing sponsor," for purposes of this section, means the sole owner in the case of a "C" corporation, the partnership in the case of a partnership, and the "S" corporation in the case of an "S" corporation.

(b) (1) The amount of the credit allocated to any housing sponsor shall be authorized by the California Tax Credit Allocation Committee, or any successor thereof, based on a project's need for the credit for economic feasibility in accordance with the requirements of this section.

(A) The low-income housing project shall be located in California and shall meet either of the following requirements:

(i) The project's housing sponsor shall have been allocated by the California Tax Credit Allocation Committee a credit for federal income tax purposes under Section 42 of the Internal Revenue Code.

(ii) It shall qualify for a credit under Section 42(h)(4)(B) of the Internal Revenue Code.

(B) The California Tax Credit Allocation Committee shall not require fees for the credit under this section in addition to those fees required for applications for the tax credit pursuant to Section 42 of the Internal Revenue Code. The committee may require a fee if the application for the credit under this section is submitted in a calendar year after the year the application is submitted for the federal tax credit.

(C) (i) For a project that receives a preliminary reservation of the state low-income housing tax credit, allowed pursuant to subdivision (a), on or after January 1, 2009, and before January 1, 2016, the credit shall be allocated to the partners of a partnership owning the project in accordance with the partnership agreement, regardless of how the federal low-income housing tax credit with respect to the project is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, within the meaning of Section 704(b) of the Internal Revenue Code.

(ii) This subparagraph shall cease to be operative with respect to any project that receives a preliminary reservation of credit on or after January 1, 2016.

(2) (A) The California Tax Credit Allocation Committee shall certify to the housing sponsor the amount of tax credit under this section allocated to the housing sponsor for each credit period.

(B) In the case of a partnership or an "S" corporation, the housing sponsor shall provide a copy of the California Tax Credit Allocation Committee certification to the taxpayer.

(C) The taxpayer shall attach a copy of the certification to any return upon which a tax credit is claimed under this section.

(D) In the case of a failure to attach a copy of the certification for the year to the return in which a tax credit is claimed under this section, no credit under this section shall be allowed for that year until a copy of that certification is provided.

(E) All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code shall apply to this section.

(F) No credit shall be allocated under this section to buildings located in a difficult development area or a qualified census tract as defined in Section 42 of the Internal Revenue Code for which the eligible basis of a new building or the rehabilitation expenditure of an existing building is 130 percent of that amount pursuant to Section 42(d)(5)(C) of the Internal Revenue Code, unless the committee reduces the amount of federal credit, with the approval of the applicant, so that the combined amount of federal and state credit shall not exceed the total credit allowable pursuant to this section and Section 42(b) of the Internal Revenue Code, computed without regard to Section 42(d)(5)(C) of the Internal Revenue Code.

(c) Section 42(b) of the Internal Revenue Code shall be modified as follows:

(1) In the case of any qualified low-income building that receives an allocation after 1989 and is a new building not federally subsidized, the term "applicable percentage" means the following:

(A) For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are not federally subsidized for the taxable year, determined in accordance with the requirements of Section 42(b)(2) of the Internal Revenue Code, in lieu of the percentage prescribed in Section 42(b)(1)(A) of the Internal Revenue Code.

(B) For the fourth year, the difference between 30 percent and the sum of the applicable percentages for the first three years.

(2) In the case of any qualified low-income building that receives an allocation after 1989 and that is a new building that is federally subsidized or that is an existing building that is "at risk of conversion," the term "applicable percentage" means the following:

(A) For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are federally subsidized for the taxable year.

(B) For the fourth year, the difference between 13 percent and the sum of the applicable percentages for the first three years.

(3) For purposes of this section, the term "at risk of conversion," with respect to an existing property means a property that satisfies all of the following criteria:

(A) The property is a multifamily rental housing development in which at least 50 percent of the units receive governmental assistance pursuant to any of the following:

(i) New construction, substantial rehabilitation, moderate rehabilitation, property disposition, and loan management set-aside programs, or any other program providing project-based assistance pursuant to Section 8 of the United States Housing Act of 1937, Section 1437f of Title 42 of the United States Code, as amended.

(ii) The Below-Market-Interest-Rate Program pursuant to Section 221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5) of Title 12 of the United States Code.

(iii) Section 236 of the National Housing Act, Section 1715z-1 of Title 12 of the United States Code.

(iv) Programs for rent supplement assistance pursuant to Section 101 of the Housing and Urban Development Act of 1965, Section 1701s of Title 12 of the United States Code, as amended.

(v) Programs pursuant to Section 515 of the Housing Act of 1949, Section 1485 of Title 42 of the United States Code, as amended.

(vi) The low-income housing credit program set forth in Section 42 of the Internal Revenue Code.

(B) The restrictions on rent and income levels will terminate or the federal insured mortgage on the property is eligible for prepayment any time within five years before or after the date of application to the California Tax Credit Allocation Committee.

(C) The entity acquiring the property enters into a regulatory agreement that requires the property to be operated in accordance with the requirements of this section for a period equal to the greater of 55 years or the life of the property.

(D) The property satisfies the requirements of Section 42(e) of the Internal Revenue Code regarding rehabilitation expenditures, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.

(d) The term "qualified low-income housing project" as defined in Section 42(c)(2) of the Internal Revenue Code is modified by adding the following requirements:

(1) The taxpayer shall be entitled to receive a cash distribution from the operations of the project, after funding required reserves, which, at the election of the taxpayer, is equal to:

(A) An amount not to exceed 8 percent of the lesser of:

(i) The owner equity which shall include the amount of the capital contributions actually paid to the housing sponsor and shall not include any amounts until they are paid on an investor note.

(ii) Twenty percent of the adjusted basis of the building as of the close of the first taxable year of the credit period.

(B) The amount of the cash flow from those units in the building that are not low-income units. For purposes of computing cash flow under this subparagraph, operating costs shall be allocated to the low-income units using the "floor space fraction," as defined in Section 42 of the Internal Revenue Code.

(C) Any amount allowed to be distributed under subparagraph (A) that is not available for distribution during the first five years of the compliance period may accumulate and be distributed any time during the first 15 years of the compliance period but not thereafter.

(2) The limitation on return shall apply in the aggregate to the partners if the housing sponsor is a partnership and in the aggregate to the shareholders if the housing sponsor is an "S" corporation.

(3) The housing sponsor shall apply any cash available for distribution in excess of the amount eligible to be distributed under paragraph (1) to reduce the rent on rent-restricted units or to increase the number of rent-restricted units subject to the tests of Section 42(g)(1) of the Internal Revenue Code.

(e) The provisions of Section 42(f) of the Internal Revenue Code shall be modified as follows:

(1) The term "credit period" as defined in Section 42(f)(1) of the Internal Revenue Code is modified by substituting "four taxable years" for "10 taxable years."

(2) The special rule for the first taxable year of the credit period under Section 42(f)(2) of the Internal Revenue Code shall not apply to the tax credit under this section.

(3) Section 42(f)(3) of the Internal Revenue Code is modified to read:

If, as of the close of any taxable year in the compliance period, after the first year of the credit period, the qualified basis of any building exceeds the qualified basis of that building as of the close of the first year of the credit period, the housing sponsor, to the extent of its tax credit allocation, shall be eligible for a credit on the excess in an amount equal to the applicable percentage determined pursuant to subdivision (c) for the four-year period beginning with the later of the taxable years in which the increase in qualified basis occurs.

(f) The provisions of Section 42(h) of the Internal Revenue Code shall be modified as follows:

(1) Section 42(h)(2) of the Internal Revenue Code shall not be applicable and instead the following provisions shall be applicable:

The total amount for the four-year credit period of the housing credit dollars allocated in a calendar year to any building shall reduce the aggregate housing credit dollar amount of the California Tax Credit Allocation Committee for the calendar year in which the allocation is made.

(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), 6(F), 6(G), 6(I), (7), and (8) of Section 42(h) of the Internal Revenue Code shall not be applicable.

(g) The aggregate housing credit dollar amount that may be allocated annually by the California Tax Credit Allocation Committee pursuant to this section, Section 17058, and Section 23610.5 shall be an amount equal to the sum of all the following:

(1) Seventy million dollars ($70,000,000) for the 2001 calendar year, and, for the 2002 calendar year and each calendar year thereafter, seventy million dollars ($70,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2001 calendar year. For the purposes of this paragraph, the term "Consumer Price Index" means the last Consumer Price Index for all urban consumers published by the federal Department of Labor.

(2) The unused housing credit ceiling, if any, for the preceding calendar years.

(3) The amount of housing credit ceiling returned in the calendar year. For purposes of this paragraph, the amount of housing credit dollar amount returned in the calendar year equals the housing credit dollar amount previously allocated to any project that does not become a qualified low-income housing project within the period required by this section or to any project with respect to which an allocation is canceled by mutual consent of the California Tax Credit Allocation Committee and the allocation recipient.

(h) The term "compliance period" as defined in Section 42(i)(1) of the Internal Revenue Code is modified to mean, with respect to any building, the period of 30 consecutive taxable years beginning with the first taxable year of the credit period with respect thereto.

(i) (1) Section 42(j) of the Internal Revenue Code shall not be applicable and the provisions in paragraph (2) shall be substituted in its place.

(2) The requirements of this section shall be set forth in a regulatory agreement between the California Tax Credit Allocation Committee and the housing sponsor, which agreement shall be subordinated, when required, to any lien or encumbrance of any banks or other institutional lenders to the project. The regulatory agreement entered into pursuant to subdivision (f) of Section 50199.14 of the Health and Safety Code, shall apply, providing the agreement includes all of the following provisions:

(A) A term not less than the compliance period.

(B) A requirement that the agreement be filed in the official records of the county in which the qualified low-income housing project is located.

(C) A provision stating which state and local agencies can enforce the regulatory agreement in the event the housing sponsor fails to satisfy any of the requirements of this section.

(D) A provision that the regulatory agreement shall be deemed a contract enforceable by tenants as third-party beneficiaries thereto and which allows individuals, whether prospective, present, or former occupants of the building, who meet the income limitation applicable to the building, the right to enforce the regulatory agreement in any state court.

(E) A provision incorporating the requirements of Section 42 of the Internal Revenue Code as modified by this section.

(F) A requirement that the housing sponsor notify the California Tax Credit Allocation Committee or its designee and the local agency that can enforce the regulatory agreement if there is a determination by the Internal Revenue Service that the project is not in compliance with Section 42(g) of the Internal Revenue Code.

(G) A requirement that the housing sponsor, as security for the performance of the housing sponsor's obligations under the regulatory agreement, assign the housing sponsor's interest in rents that it receives from the project, provided that until there is a default under the regulatory agreement, the housing sponsor is entitled to collect and retain the rents.

(H) The remedies available in the event of a default under the regulatory agreement that is not cured within a reasonable cure period, include, but are not limited to, allowing any of the parties designated to enforce the regulatory agreement to collect all rents with respect to the project; taking possession of the project and operating the project in accordance with the regulatory agreement until the enforcer determines the housing sponsor is in a position to operate the project in accordance with the regulatory agreement; applying to any court for specific performance; securing the appointment of a receiver to operate the project; or any other relief as may be appropriate.

(j) (1) The committee shall allocate the housing credit on a regular basis consisting of two or more periods in each calendar year during which applications may be filed and considered. The committee shall establish application filing deadlines, the maximum percentage of federal and state low-income housing tax credit ceiling which may be allocated by the committee in that period, and the approximate date on which allocations shall be made. If the enactment of federal or state law, the adoption of rules or regulations, or other similar events prevent the use of two allocation periods, the committee may reduce the number of periods and adjust the filing deadlines, maximum percentage of credit allocated, and the allocation dates.

(2) The committee shall adopt a qualified allocation plan, as provided in Section 42(m)(1) of the Internal Revenue Code. In adopting this plan, the committee shall comply with the provisions of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code.

(3) Notwithstanding Section 42(m) of the Internal Revenue Code, the California Tax Credit Allocation Committee shall allocate housing credits in accordance with the qualified allocation plan and regulations, which shall include the following provisions:

(A) All housing sponsors, as defined by paragraph (3) of subdivision (a), shall demonstrate at the time the application is filed with the committee that the project meets the following threshold requirements:

(i) The housing sponsor shall demonstrate there is a need and demand for low-income housing in the community or region for which it is proposed.

(ii) The project's proposed financing, including tax credit proceeds, shall be sufficient to complete the project and that the proposed operating income shall be adequate to operate the project for the extended use period.

(iii) The project shall have enforceable financing commitments, either construction or permanent financing, for at least 50 percent of the total estimated financing of the project.

(iv) The housing sponsor shall have and maintain control of the site for the project.

(v) The housing sponsor shall demonstrate that the project complies with all applicable local land use and zoning ordinances.

(vi) The housing sponsor shall demonstrate that the project development team has the experience and the financial capacity to ensure project completion and operation for the extended use period.

(vii) The housing sponsor shall demonstrate the amount of tax credit that is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the extended use period, taking into account operating expenses, a supportable debt service, reserves, funds set aside for rental subsidies, and required equity, and a development fee that does not exceed a specified percentage of the eligible basis of the project prior to inclusion of the development fee in the eligible basis, as determined by the committee.

(B) The committee shall give a preference to those projects satisfying all of the threshold requirements of subparagraph (A) if both of the following apply:

(i) The project serves the lowest income tenants at rents affordable to those tenants.

(ii) The project is obligated to serve qualified tenants for the longest period.

(C) In addition to the provisions of subparagraphs (A) and (B), the committee shall use the following criteria in allocating housing credits:

(i) Projects serving large families in which a substantial number, as defined by the committee, of all residential units is comprised of low-income units with three and more bedrooms.

(ii) Projects providing single room occupancy units serving very low income tenants.

(iii) Existing projects that are "at risk of conversion," as defined by paragraph (3) of subdivision (c).

(iv) Projects for which a public agency provides direct or indirect long-term financial support for at least 15 percent of the total project development costs or projects for which the owner's equity constitutes at least 30 percent of the total project development costs.

(v) Projects that provide tenant amenities not generally available to residents of low-income housing projects.

(4) For purposes of allocating credits pursuant to this section, the committee shall not give preference to any project by virtue of the date of submission of its application except to break a tie when two or more of the projects have an equal rating.

(k) Section 42(l) of the Internal Revenue Code shall be modified as follows:

The term "secretary" shall be replaced by the term "California Franchise Tax Board."

(l) In the case where the state credit allowed under 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.

(m) The provisions of Section 11407(a) of Public Law 101-508, relating to the effective date of the extension of the low-income housing credit, shall apply to calendar years after 1993.

(n) The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, shall not apply.

(o) This section shall remain in effect for as long as Section 42 of the Internal Revenue Code, relating to low-income housing credits, remains in effect.

History.—Added by Stats. 1993, Ch. 1222 (AB 1438), in effect October 11, 1993, operative term contingent. Stats. 1994, Ch. 1164 (AB 3651), in effect January 1, 1995, substituted "(C)" for "(c)" after "pursuant to Section 42(d)(5)" in subparagraph (b)(2)(F); substituted "incentives" for "prepayment" after "is eligible for", substituted "two" for "three" after "anytime in the", and added "and the purchaser has . . . plan of action", in subparagraph (c)(3)(B); substituted "Paragraph (3), (4), . . . 6(G), 6(I)," for "paragraph (3), (4), (6)," in subparagraph (f)(2); substituted "The" for "Notwithstanding subdivision (m), the" in subdivision (g); redesignated former subdivision (h)(1) to be subdivision (h); deleted ", subject to the limitation in paragraph (2)" after "with respect thereto" in subdivision (h); deleted former subdivisions (h)(2)–(h)(4) and (i)(2)(F) which read: "(h)(2) If, after the first 18 years of the compliance period, a qualified low-income housing project is not economically feasible, the housing sponsor shall be entitled to remove one or more low-income units from the set-aside and rent requirements of Section 42(g) of the Internal Revenue Code as is necessary for the project to become economically feasible, provided that once a project is again economically feasible, the housing sponsor designates the next available units as low-income units subject to the set-aside and rent requirements, up to the number of low-income units necessary to arrive at the original applicable fraction, while keeping the project economically feasible. "(h)(3) For purposes of paragraph (2), "economically feasible" means that project revenue equals or exceeds project operating expenses excluding any return on investment. "(h)(4) For purposes of paragraph (3) "operating expenses" means the reasonable expenses necessary to operate and maintain the project in habitable condition debt service, taxes, and reasonable reserves. The purposes of this paragraph, debt service shall not include that portion of payments of principal and interest attributable to any excess refinanced principal over the outstanding principal of the loan that was refinanced, except to the extent the excess was used for the rehabilitation of the project.; deleted subparagraph (i)(2)(F) which read: "A requirement that the housing sponsor provide the California Tax Credit Allocation Committee or its designee and the local agency that can enforce the regulatory agreement with advance notice if the housing sponsor intends to reduce the number of low-income units to make a project economically feasible."; relettered subparagraphs "(G)", "(H)", "(I)" in subdivision (i) as "(F)", "(G)", and "(H)", respectively; substituted "two or more" for "not less than three" after "basis consisting of", and substituted "two" for "three" after "the use of" in subparagraph (j)(1); added "and demand" after "there is a need" in subparagraph (j)(3)(A)(i); added "that the proposed operating income" after "the project and" in subparagraph (j)(3)(A)(ii); deleted "for the low-income units," after "and required entity,", substituted "eligible" for "qualified" after "percentage of the", and substituted "eligible" for "qualified" after "development fee in the", in subparagraph (j)(3)(A)(vii); substituted "a substantial number, as defined by the committee," for "the greatest percentage of total square feet" after "families in which" in subparagraph (j)(3)(C)(i); deleted subparagraph (j)(3)(C)(vi) which read: "Projects located within a "difficult to develop area" or a "qualified census tract" as defined in Section 42(d)(5)(C) of the Internal Revenue Code."; deleted subparagraph (j)(5) which read: "Not less than 20 percent of the low-income housing tax credits available annually under this section, Section 17058, and Section 23610.5 shall be set aside for allocation to rural areas as defined in Section 50199.21 of the Health and Safety Code. Any amount of credit set aside for rural areas remaining on or after October 31 of any calendar year shall be available for allocation to any eligible project. No amount of credit set aside for rural areas shall be considered available for any eligible project so long as there are eligible rural applications pending on October 31."; substituted "Franchise Tax Board" for "Tax Credit Allocation Committee" after the term "California" in subdivision (k); deleted subdivision (m) which read: "The aggregate amount of tax credits granted pursuant to this section, Section 17058, and Section 23610.5 shall not exceed thirty-five million dollars ($35,000,000) per year. The California Tax Credit Allocation Committee shall not authorize any credit if the total amount of credits authorized in any year under the Personal Income Tax Law and the Bank and Corporation Tax Law exceeds thirty-five million dollars ($35,000,000)"; and relettered the subdivision designations "(n)", "(o)", and "(p)" as "(m)", "(n)", and "(o)", respectively. Stats. 1998, Ch. 9 (AB 168), in effect March 26, 1998, but operative for tax years, taxable years, or income years beginning on or after January 1, 1998, substituted "(A) Except as . . . calendar year thereafter" for "Thirty-five million dollars ($35,000,000)" after "(1)" in, added subparagraph (B), and substituted a period for "; and" after "preceding calendar year" in (2), of subdivision (g). Stats. 2000, Ch. 3 (AB 1626), in effect February 23, 2000, deleted "or" after "paid on an investor note" in subparagraph (d)(1)(A)(i); deleted "or" after "year of the credit period" in subparagraph (d)(1)(A)(ii); substituted "Fifty million dollars ($50,000,000) for the 1999 calendar year and each calendar year thereafter" for "Except as provided in subdivision (B), thirty-five million dollars ($35,000,000) for the 1997 calendar year, and each calandar year thereafter" in subparagraph (g)(1)(A); deleted subparagraph (g)(1)(B) which provided "Fifty million dollars ($50,000,000) for each of the calendar years 1998 and 1999 calendar year and each calendar year thereafter"; substituted "if both of the following apply" for "if" after "threshold requirements of subparagraph (A)" in subparagraph (j)(3)(B); deleted "and" after "affordable to those tenants" in subparagraph (j)(3)(B)(1); and substituted "and more bedrooms" for "or more bedrooms" after "units with three" in subparagraph (j)(3)(C)(I). Stats. 2001, Ch. 668 (SB 73), in effect October 10, 2001, substituted "taxable" for "income" in subparagraphs (d)(1)(A)(ii), (e)(1), (e)(3) and subdivision (h), added "all" after "to the sum of" in subdivision (g) and substituted "Seventy million dollars . . . " for "Fifty million dollars . . . " in subparagraph (g)(1). Stats. 2005, Ch. 501 (SB 950), in effect January 1, 2006, added quotation marks around "C" and "S" wherever they appear; substituted "property" for "building" in paragraph (3) in subdivision (c); substituted "property" for "building" in subparagraph (A) in paragraph (3); substituted "a multifamily rental housing development in which at least 50 percent of the units receive governmental assistance pursuant to any of the following:" for "presently owned by a housing sponsor other than a qualified nonprofit organization" in subparagraph (A) in paragraph (3), added subparagraphs (i) (ii), (iii), (iv), (v), (vi) to subparagraph (A) in paragraph (3) in subdivision (c); deleted "building is a federally assisted building for which the low income use" in subparagraph (B) in paragraph (3), added "on rent and income levels" after "restrictions" in subparagraph (B) in paragraph (3), added "federal insured" after "will terminate or the" in subparagraph (B) in paragraph (3), substituted "property" for "building" in subparagraph (B) in paragraph (3) in subdivision (c); deleted "incentives under Subtitle 13 of the Emergency Low Income Housing Assistance Act of 1987 or under Section 502 (c) of the Housing Act of 1949," in subparagraph (B) in paragraph (3); added "prepayment" after "is eligible for", substituted "five" calendar years for "two", and deleted ", and the purchaser has received preliminary approval from the applicable federal agency for a maximum level of incentives through a plan of action" in subparagraph (B) in paragraph (3) in subdivision (c); substituted "entity" for "person", substituted "property" for "building" throughout subparagraph (C) in paragraph (3) in subdivision (c); substituted "property" for "building" in subparagraph (D) in paragraph (3) in subdivision (c); deleted hyphen in "cash-flow" in first sentence and deleted hyphen in "cash-flow" in second sentence both in subparagraph (B) in paragraph (1) in subdivision (d); hyphenated "low-income" after "project that does not become a qualified" in paragraph (3) in subdivision (g); and substituted "(3)" for "(4)" in subparagraph (iii) in subparagraph (C) in paragraph (3) in subdivision (j). Stats. 2006, Ch. 892 (AB 2638), in effect September 30, 2006, deleted ", provided that the property is not eligible to receive an allocation of tax exempt private activity mortgage revenue bonds from the California Debt Limit Allocation Committee" in subparagraph (vi) of subparagraph (A) of paragraph (3) of subdivision (c); substituted "within" for "in the" after "for prepayment anytime", deleted "calendar" after "anytime within five", added "before or" after "five years", and substituted "date" for "year" after "before or after the" in subparagraph (B) of paragraph (3) of subdivision (c); and deleted hyphen in "cash-flow" twice in subparagraph (B) of paragraph (1) of subdivision (d). Stats. 2008, Ch. 382 (SB 585), in effect September 27, 2008, added subparagraphs (C)(i) and (C)(ii) to paragraph (1) of subdivision (b); inserted "l" to correct the reference which read "Sections 1715 (d)(3)" in subparagraph (A)(ii) of, and substituted "any time" for "anytime" after "prepayment" in subparagragh (B) of, paragraph (3) of subdivision (c); substituted "30 consecutive" for "30-consecutive" after "the period of" in subdivision (h).

Text of section operative January 1, 2009

12206. Low income housing tax credit. (a) (1) There shall be allowed as a credit against the "tax" (as defined by Section 12201) a state low-income housing tax credit in an amount equal to the amount determined in subdivision (c), computed in accordance with Section 42 of the Internal Revenue Code, except as otherwise provided in this section.

(2) "Taxpayer," for purposes of this section, means the sole owner in the case of a "C" corporation, the partners in the case of a partnership, and the shareholders in the case of an "S" corporation.

(3) "Housing sponsor," for purposes of this section, means the sole owner in the case of a "C" corporation, the partnership in the case of a partnership, and the "S" corporation in the case of an "S" corporation.

(b) (1) The amount of the credit allocated to any housing sponsor shall be authorized by the California Tax Credit Allocation Committee, or any successor thereof, based on a project's need for the credit for economic feasibility in accordance with the requirements of this section.

(A) Except for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code, that are allocated credits solely under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code, the low-income housing project shall be located in California and shall meet either of the following requirements:

(i) The project's housing sponsor shall have been allocated by the California Tax Credit Allocation Committee a credit for federal income tax purposes under Section 42 of the Internal Revenue Code.

(ii) It shall qualify for a credit under Section 42(h)(4)(B) of the Internal Revenue Code.

(B) The California Tax Credit Allocation Committee shall not require fees for the credit under this section in addition to those fees required for applications for the tax credit pursuant to Section 42 of the Internal Revenue Code. The committee may require a fee if the application for the credit under this section is submitted in a calendar year after the year the application is submitted for the federal tax credit.

(C) (i) For a project that receives a preliminary reservation of the state low-income housing tax credit, allowed pursuant to subdivision (a), on or after January 1, 2009, and before January 1, 2016, the credit shall be allocated to the partners of a partnership owning the project in accordance with the partnership agreement, regardless of how the federal low-income housing tax credit with respect to the project is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, within the meaning of Section 704(b) of the Internal Revenue Code.

(ii) This subparagraph shall not apply to a project that receives a preliminary reservation of state low-income housing tax credits under the set-aside described in subdivision (c) of Section 50199.20 of the Health and Safety Code unless the project also receives a preliminary reservation of federal low-income housing tax credits.

(iii) This subparagraph shall cease to be operative with respect to any project that receives a preliminary reservation of a credit on or after January 1, 2016.

(2) (A) The California Tax Credit Allocation Committee shall certify to the housing sponsor the amount of tax credit under this section allocated to the housing sponsor for each credit period.

(B) In the case of a partnership or an "S" corporation, the housing sponsor shall provide a copy of the California Tax Credit Allocation Committee certification to the taxpayer.

(C) The taxpayer shall attach a copy of the certification to any return upon which a tax credit is claimed under this section.

(D) In the case of a failure to attach a copy of the certification for the year to the return in which a tax credit is claimed under this section, no credit under this section shall be allowed for that year until a copy of that certification is provided.

(E) All elections made by the taxpayer pursuant to Section 42 of the Internal Revenue Code shall apply to this section.

(F) No credit shall be allocated under this section to buildings located in a difficult development area or a qualified census tract as defined in Section 42 of the Internal Revenue Code for which the eligible basis of a new building or the rehabilitation expenditure of an existing building is 130 percent of that amount pursuant to Section 42(d)(5)(C) of the Internal Revenue Code, unless the committee reduces the amount of federal credit, with the approval of the applicant, so that the combined amount of federal and state credit shall not exceed the total credit allowable pursuant to this section and Section 42(b) of the Internal Revenue Code, computed without regard to Section 42(d)(5)(C) of the Internal Revenue Code.

(c) Section 42(b) of the Internal Revenue Code shall be modified as follows:

(1) In the case of any qualified low-income building that receives an allocation after 1989 and is a new building not federally subsidized, the term "applicable percentage" means the following:

(A) For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are not federally subsidized for the taxable year, determined in accordance with the requirements of Section 42(b)(2) of the Internal Revenue Code, in lieu of the percentage prescribed in Section 42(b)(1)(A) of the Internal Revenue Code.

(B) For the fourth year, the difference between 30 percent and the sum of the applicable percentages for the first three years.

(2) In the case of any qualified low-income building that receives an allocation after 1989 and that is a new building that is federally subsidized or that is an existing building that is "at risk of conversion," the term "applicable percentage" means the following:

(A) For each of the first three years, the percentage prescribed by the Secretary of the Treasury for new buildings that are federally subsidized for the taxable year.

(B) For the fourth year, the difference between 13 percent and the sum of the applicable percentages for the first three years.

(3) For purposes of this section, the term "at risk of conversion," with respect to an existing property means a property that satisfies all of the following criteria:

(A) The property is a multifamily rental housing development in which at least 50 percent of the units receive governmental assistance pursuant to any of the following:

(i) New construction, substantial rehabilitation, moderate rehabilitation, property disposition, and loan management set-aside programs, or any other program providing project-based assistance pursuant to Section 8 of the United States Housing Act of 1937, Section 1437f of Title 42 of the United States Code, as amended.

(ii) The Below-Market-Interest-Rate Program pursuant to Section 221(d)(3) of the National Housing Act, Sections 1715l(d)(3) and (5) of Title 12 of the United States Code.

(iii) Section 236 of the National Housing Act, Section 1715z-1 of Title 12 of the United States Code.

(iv) Programs for rent supplement assistance pursuant to Section 101 of the Housing and Urban Development Act of 1965, Section 1701s of Title 12 of the United States Code, as amended.

(v) Programs pursuant to Section 515 of the Housing Act of 1949, Section 1485 of Title 42 of the United States Code, as amended.

(vi) The low-income housing credit program set forth in Section 42 of the Internal Revenue Code.

(B) The restrictions on rent and income levels will terminate or the federal insured mortgage on the property is eligible for prepayment any time within five years before or after the date of application to the California Tax Credit Allocation Committee.

(C) The entity acquiring the property enters into a regulatory agreement that requires the property to be operated in accordance with the requirements of this section for a period equal to the greater of 55 years or the life of the property.

(D) The property satisfies the requirements of Section 42(e) of the Internal Revenue Code regarding rehabilitation expenditures, except that the provisions of Section 42(e)(3)(A)(ii)(I) shall not apply.

(d) The term "qualified low-income housing project" as defined in Section 42(c)(2) of the Internal Revenue Code is modified by adding the following requirements:

(1) The taxpayer shall be entitled to receive a cash distribution from the operations of the project, after funding required reserves, which, at the election of the taxpayer, is equal to:

(A) An amount not to exceed 8 percent of the lesser of:

(i) The owner equity which shall include the amount of the capital contributions actually paid to the housing sponsor and shall not include any amounts until they are paid on an investor note.

(ii) Twenty percent of the adjusted basis of the building as of the close of the first taxable year of the credit period.

(B) The amount of the cash flow from those units in the building that are not low-income units. For purposes of computing cash flow under this subparagraph, operating costs shall be allocated to the low-income units using the "floor space fraction," as defined in Section 42 of the Internal Revenue Code.

(C) Any amount allowed to be distributed under subparagraph (A) that is not available for distribution during the first five years of the compliance period may accumulate and be distributed any time during the first 15 years of the compliance period but not thereafter.

(2) The limitation on return shall apply in the aggregate to the partners if the housing sponsor is a partnership and in the aggregate to the shareholders if the housing sponsor is an "S" corporation.

(3) The housing sponsor shall apply any cash available for distribution in excess of the amount eligible to be distributed under paragraph (1) to reduce the rent on rent-restricted units or to increase the number of rent-restricted units subject to the tests of Section 42(g)(1) of the Internal Revenue Code.

(e) The provisions of Section 42(f) of the Internal Revenue Code shall be modified as follows:

(1) The term "credit period" as defined in Section 42(f)(1) of the Internal Revenue Code is modified by substituting "four taxable years" for "10 taxable years."

(2) The special rule for the first taxable year of the credit period under Section 42(f)(2) of the Internal Revenue Code shall not apply to the tax credit under this section.

(3) Section 42(f)(3) of the Internal Revenue Code is modified to read:

If, as of the close of any taxable year in the compliance period, after the first year of the credit period, the qualified basis of any building exceeds the qualified basis of that building as of the close of the first year of the credit period, the housing sponsor, to the extent of its tax credit allocation, shall be eligible for a credit on the excess in an amount equal to the applicable percentage determined pursuant to subdivision (c) for the four-year period beginning with the later of the taxable years in which the increase in qualified basis occurs.

(f) The provisions of Section 42(h) of the Internal Revenue Code shall be modified as follows:

(1) Section 42(h)(2) of the Internal Revenue Code shall not be applicable and instead the following provisions shall be applicable:

The total amount for the four-year credit period of the housing credit dollars allocated in a calendar year to any building shall reduce the aggregate housing credit dollar amount of the California Tax Credit Allocation Committee for the calendar year in which the allocation is made.

(2) Paragraphs (3), (4), (5), (6)(E)(i)(II), 6(F), 6(G), 6(I), (7), and (8) of Section 42(h) of the Internal Revenue Code shall not be applicable.

(g) The aggregate housing credit dollar amount that may be allocated annually by the California Tax Credit Allocation Committee pursuant to this section, Section 17058, and Section 23610.5 shall be an amount equal to the sum of all the following:

(1) Seventy million dollars ($70,000,000) for the 2001 calendar year, and, for the 2002 calendar year and each calendar year thereafter, seventy million dollars ($70,000,000) increased by the percentage, if any, by which the Consumer Price Index for the preceding calendar year exceeds the Consumer Price Index for the 2001 calendar year. For the purposes of this paragraph, the term "Consumer Price Index" means the last Consumer Price Index for all urban consumers published by the federal Department of Labor.

(2) The unused housing credit ceiling, if any, for the preceding calendar years.

(3) The amount of housing credit ceiling returned in the calendar year. For purposes of this paragraph, the amount of housing credit dollar amount returned in the calendar year equals the housing credit dollar amount previously allocated to any project that does not become a qualified low-income housing project within the period required by this section or to any project with respect to which an allocation is canceled by mutual consent of the California Tax Credit Allocation Committee and the allocation recipient.

(4) Five hundred thousand dollars ($500,000) per calendar year for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.

(5) The amount of any unallocated or returned credits under former Sections 17053.14, 23608.2, and 23608.3, as those sections read prior to January 1, 2009, until fully exhausted for projects to provide farmworker housing, as defined in subdivision (h) of Section 50199.7 of the Health and Safety Code.

(h) The term "compliance period" as defined in Section 42(i)(1) of the Internal Revenue Code is modified to mean, with respect to any building, the period of 30 consecutive taxable years beginning with the first taxable year of the credit period with respect thereto.

(i) (1) Section 42(j) of the Internal Revenue Code shall not be applicable and the provisions in paragraph (2) shall be substituted in its place.

(2) The requirements of this section shall be set forth in a regulatory agreement between the California Tax Credit Allocation Committee and the housing sponsor, which agreement shall be subordinated, when required, to any lien or encumbrance of any banks or other institutional lenders to the project. The regulatory agreement entered into pursuant to subdivision (f) of Section 50199.14 of the Health and Safety Code, shall apply, providing the agreement includes all of the following provisions:

(A) A term not less than the compliance period.

(B) A requirement that the agreement be filed in the official records of the county in which the qualified low-income housing project is located.

(C) A provision stating which state and local agencies can enforce the regulatory agreement in the event the housing sponsor fails to satisfy any of the requirements of this section.

(D) A provision that the regulatory agreement shall be deemed a contract enforceable by tenants as third-party beneficiaries thereto and which allows individuals, whether prospective, present, or former occupants of the building, who meet the income limitation applicable to the building, the right to enforce the regulatory agreement in any state court.

(E) A provision incorporating the requirements of Section 42 of the Internal Revenue Code as modified by this section.

(F) A requirement that the housing sponsor notify the California Tax Credit Allocation Committee or its designee and the local agency that can enforce the regulatory agreement if there is a determination by the Internal Revenue Service that the project is not in compliance with Section 42(g) of the Internal Revenue Code.

(G) A requirement that the housing sponsor, as security for the performance of the housing sponsor's obligations under the regulatory agreement, assign the housing sponsor's interest in rents that it receives from the project, provided that until there is a default under the regulatory agreement, the housing sponsor is entitled to collect and retain the rents.

(H) The remedies available in the event of a default under the regulatory agreement that is not cured within a reasonable cure period, include, but are not limited to, allowing any of the parties designated to enforce the regulatory agreement to collect all rents with respect to the project; taking possession of the project and operating the project in accordance with the regulatory agreement until the enforcer determines the housing sponsor is in a position to operate the project in accordance with the regulatory agreement; applying to any court for specific performance; securing the appointment of a receiver to operate the project; or any other relief as may be appropriate.

(j) (1) The committee shall allocate the housing credit on a regular basis consisting of two or more periods in each calendar year during which applications may be filed and considered. The committee shall establish application filing deadlines, the maximum percentage of federal and state low-income housing tax credit ceiling which may be allocated by the committee in that period, and the approximate date on which allocations shall be made. If the enactment of federal or state law, the adoption of rules or regulations, or other similar events prevent the use of two allocation periods, the committee may reduce the number of periods and adjust the filing deadlines, maximum percentage of credit allocated, and the allocation dates.

(2) The committee shall adopt a qualified allocation plan, as provided in Section 42(m)(1) of the Internal Revenue Code. In adopting this plan, the committee shall comply with the provisions of Sections 42(m)(1)(B) and 42(m)(1)(C) of the Internal Revenue Code.

(3) Notwithstanding Section 42(m) of the Internal Revenue Code, the California Tax Credit Allocation Committee shall allocate housing credits in accordance with the qualified allocation plan and regulations, which shall include the following provisions:

(A) All housing sponsors, as defined by paragraph (3) of subdivision (a), shall demonstrate at the time the application is filed with the committee that the project meets the following threshold requirements:

(i) The housing sponsor shall demonstrate there is a need and demand for low-income housing in the community or region for which it is proposed.

(ii) The project's proposed financing, including tax credit proceeds, shall be sufficient to complete the project and that the proposed operating income shall be adequate to operate the project for the extended use period.

(iii) The project shall have enforceable financing commitments, either construction or permanent financing, for at least 50 percent of the total estimated financing of the project.

(iv) The housing sponsor shall have and maintain control of the site for the project.

(v) The housing sponsor shall demonstrate that the project complies with all applicable local land use and zoning ordinances.

(vi) The housing sponsor shall demonstrate that the project development team has the experience and the financial capacity to ensure project completion and operation for the extended use period.

(vii) The housing sponsor shall demonstrate the amount of tax credit that is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the extended use period, taking into account operating expenses, a supportable debt service, reserves, funds set aside for rental subsidies, and required equity, and a development fee that does not exceed a specified percentage of the eligible basis of the project prior to inclusion of the development fee in the eligible basis, as determined by the committee.

(B) The committee shall give a preference to those projects satisfying all of the threshold requirements of subparagraph (A) if both of the following apply:

(i) The project serves the lowest income tenants at rents affordable to those tenants.

(ii) The project is obligated to serve qualified tenants for the longest period.

(C) In addition to the provisions of subparagraphs (A) and (B), the committee shall use the following criteria in allocating housing credits:

(i) Projects serving large families in which a substantial number, as defined by the committee, of all residential units is comprised of low-income units with three and more bedrooms.

(ii) Projects providing single room occupancy units serving very low income tenants.

(iii) Existing projects that are "at risk of conversion," as defined by paragraph (3) of subdivision (c).

(iv) Projects for which a public agency provides direct or indirect long-term financial support for at least 15 percent of the total project development costs or projects for which the owner's equity constitutes at least 30 percent of the total project development costs.

(v) Projects that provide tenant amenities not generally available to residents of low-income housing projects.

(4) For purposes of allocating credits pursuant to this section, the committee shall not give preference to any project by virtue of the date of submission of its application except to break a tie when two or more of the projects have an equal rating.

(k) Section 42(l) of the Internal Revenue Code shall be modified as follows:

The term "secretary" shall be replaced by the term "California Franchise Tax Board."

(l) In the case where the state credit allowed under 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.

(m) The provisions of Section 11407(a) of Public Law 101-508, relating to the effective date of the extension of the low-income housing credit, shall apply to calendar years after 1993.

(n) The provisions of Section 11407(c) of Public Law 101-508, relating to election to accelerate credit, shall not apply.

(o) This section shall remain in effect for as long as Section 42 of the Internal Revenue Code, relating to low-income housing credits, remains in effect.

History.—Added by Stats. 1993, Ch. 1222 (AB 1438), in effect October 11, 1993, operative term contingent. Stats. 1994, Ch. 1164 (AB 3651), in effect January 1, 1995, substituted "(C)" for "(c)" after "pursuant to Section 42(d)(5)" in subparagraph (b)(2)(F); substituted "incentives" for "prepayment" after "is eligible for", substituted "two" for "three" after "anytime in the", and added "and the purchaser has . . . plan of action", in subparagraph (c)(3)(B); substituted "Paragraph (3), (4), . . . 6(G), 6(I)," for "paragraph (3), (4), (6)," in subparagraph (f)(2); substituted "The" for "Notwithstanding subdivision (m), the" in subdivision (g); redesignated former subdivision (h)(1) to be subdivision (h); deleted ", subject to the limitation in paragraph (2)" after "with respect thereto" in subdivision (h); deleted former subdivisions (h)(2)–(h)(4) and (i)(2)(F) which read: "(h)(2) If, after the first 18 years of the compliance period, a qualified low-income housing project is not economically feasible, the housing sponsor shall be entitled to remove one or more low-income units from the set-aside and rent requirements of Section 42(g) of the Internal Revenue Code as is necessary for the project to become economically feasible, provided that once a project is again economically feasible, the housing sponsor designates the next available units as low-income units subject to the set-aside and rent requirements, up to the number of low-income units necessary to arrive at the original applicable fraction, while keeping the project economically feasible. "(h)(3) For purposes of paragraph (2), "economically feasible" means that project revenue equals or exceeds project operating expenses excluding any return on investment. "(h)(4) For purposes of paragraph (3) "operating expenses" means the reasonable expenses necessary to operate and maintain the project in habitable condition debt service, taxes, and reasonable reserves. The purposes of this paragraph, debt service shall not include that portion of payments of principal and interest attributable to any excess refinanced principal over the outstanding principal of the loan that was refinanced, except to the extent the excess was used for the rehabilitation of the project.; deleted subparagraph (i)(2)(F) which read: "A requirement that the housing sponsor provide the California Tax Credit Allocation Committee or its designee and the local agency that can enforce the regulatory agreement with advance notice if the housing sponsor intends to reduce the number of low-income units to make a project economically feasible."; relettered subparagraphs "(G)", "(H)", "(I)" in subdivision (i) as "(F)", "(G)", and "(H)", respectively; substituted "two or more" for "not less than three" after "basis consisting of", and substituted "two" for "three" after "the use of" in subparagraph (j)(1); added "and demand" after "there is a need" in subparagraph (j)(3)(A)(i); added "that the proposed operating income" after "the project and" in subparagraph (j)(3)(A)(ii); deleted "for the low-income units," after "and required entity,", substituted "eligible" for "qualified" after "percentage of the", and substituted "eligible" for "qualified" after "development fee in the", in subparagraph (j)(3)(A)(vii); substituted "a substantial number, as defined by the committee," for "the greatest percentage of total square feet" after "families in which" in subparagraph (j)(3)(C)(i); deleted subparagraph (j)(3)(C)(vi) which read: "Projects located within a "difficult to develop area" or a "qualified census tract" as defined in Section 42(d)(5)(C) of the Internal Revenue Code."; deleted subparagraph (j)(5) which read: "Not less than 20 percent of the low-income housing tax credits available annually under this section, Section 17058, and Section 23610.5 shall be set aside for allocation to rural areas as defined in Section 50199.21 of the Health and Safety Code. Any amount of credit set aside for rural areas remaining on or after October 31 of any calendar year shall be available for allocation to any eligible project. No amount of credit set aside for rural areas shall be considered available for any eligible project so long as there are eligible rural applications pending on October 31."; substituted "Franchise Tax Board" for "Tax Credit Allocation Committee" after the term "California" in subdivision (k); deleted subdivision (m) which read: "The aggregate amount of tax credits granted pursuant to this section, Section 17058, and Section 23610.5 shall not exceed thirty-five million dollars ($35,000,000) per year. The California Tax Credit Allocation Committee shall not authorize any credit if the total amount of credits authorized in any year under the Personal Income Tax Law and the Bank and Corporation Tax Law exceeds thirty-five million dollars ($35,000,000)"; and relettered the subdivision designations "(n)", "(o)", and "(p)" as "(m)", "(n)", and "(o)", respectively. Stats. 1998, Ch. 9 (AB 168), in effect March 26, 1998, but operative for tax years, taxable years, or income years beginning on or after January 1, 1998, substituted "(A) Except as . . . calendar year thereafter" for "Thirty-five million dollars ($35,000,000)" after "(1)" in, added subparagraph (B), and substituted a period for "; and" after "preceding calendar year" in (2), of subdivision (g). Stats. 2000, Ch. 3 (AB 1626), in effect February 23, 2000, deleted "or" after "paid on an investor note" in subparagraph (d)(1)(A)(i); deleted "or" after "year of the credit period" in subparagraph (d)(1)(A)(ii); substituted "Fifty million dollars ($50,000,000) for the 1999 calendar year and each calendar year thereafter" for "Except as provided in subdivision (B), thirty-five million dollars ($35,000,000) for the 1997 calendar year, and each calandar year thereafter" in subparagraph (g)(1)(A); deleted subparagraph (g)(1)(B) which provided "Fifty million dollars ($50,000,000) for each of the calendar years 1998 and 1999 calendar year and each calendar year thereafter"; substituted "if both of the following apply" for "if" after "threshold requirements of subparagraph (A)" in subparagraph (j)(3)(B); deleted "and" after "affordable to those tenants" in subparagraph (j)(3)(B)(1); and substituted "and more bedrooms" for "or more bedrooms" after "units with three" in subparagraph (j)(3)(C)(I). Stats. 2001, Ch. 668 (SB 73), in effect October 10, 2001, substituted "taxable" for "income" in subparagraphs (d)(1)(A)(ii), (e)(1), (e)(3) and subdivision (h), added "all" after "to the sum of" in subdivision (g) and substituted "Seventy million dollars . . . " for "Fifty million dollars . . . " in subparagraph (g)(1). Stats. 2005, Ch. 501 (SB 950), in effect January 1, 2006, added quotation marks around "C" and "S" wherever they appear; substituted "property" for "building" in paragraph (3) in subdivision (c); substituted "property" for "building" in subparagraph (A) in paragraph (3); substituted "a multifamily rental housing development in which at least 50 percent of the units receive governmental assistance pursuant to any of the following:" for "presently owned by a housing sponsor other than a qualified nonprofit organization" in subparagraph (A) in paragraph (3), added subparagraphs (i) (ii), (iii), (iv), (v), (vi) to subparagraph (A) in paragraph (3) in subdivision (c); deleted "building is a federally assisted building for which the low income use" in subparagraph (B) in paragraph (3), added "on rent and income levels" after "restrictions" in subparagraph (B) in paragraph (3), added "federal insured" after "will terminate or the" in subparagraph (B) in paragraph (3), substituted "property" for "building" in subparagraph (B) in paragraph (3) in subdivision (c); deleted "incentives under Subtitle 13 of the Emergency Low Income Housing Assistance Act of 1987 or under Section 502 (c) of the Housing Act of 1949," in subparagraph (B) in paragraph (3); added "prepayment" after "is eligible for", substituted "five" calendar years for "two", and deleted ", and the purchaser has received preliminary approval from the applicable federal agency for a maximum level of incentives through a plan of action" in subparagraph (B) in paragraph (3) in subdivision (c); substituted "entity" for "person", substituted "property" for "building" throughout subparagraph (C) in paragraph (3) in subdivision (c); substituted "property" for "building" in subparagraph (D) in paragraph (3) in subdivision (c); deleted hyphen in "cash-flow" in first sentence and deleted hyphen in "cash-flow" in second sentence both in subparagraph (B) in paragraph (1) in subdivision (d); hyphenated "low-income" after "project that does not become a qualified" in paragraph (3) in subdivision (g); and substituted "(3)" for "(4)" in subparagraph (iii) in subparagraph (C) in paragraph (3) in subdivision (j). Stats. 2006, Ch. 892 (AB 2638), in effect September 30, 2006, deleted ", provided that the property is not eligible to receive an allocation of tax exempt private activity mortgage revenue bonds from the California Debt Limit Allocation Committee" in subparagraph (vi) of subparagraph (A) of paragraph (3) of subdivision (c); substituted "within" for "in the" after "for prepayment anytime", deleted "calendar" after "anytime within five", added "before or" after "five years", and substituted "date" for "year" after "before or after the" in subparagraph (B) of paragraph (3) of subdivision (c); and deleted hyphen in "cash-flow" twice in subparagraph (B) of paragraph (1) of subdivision (d). Stats. 2008, Ch. 382 (SB 585), in effect September 27, 2008, added subparagraphs (C)(i) and (C)(ii) to paragraph (1) of subdivision (b); inserted "l" to correct the reference which read "Sections 1715 (d)(3)" in subparagraph (A)(ii) of, and substituted "any time" for "anytime" after "prepayment" in subparagragh (B) of, paragraph (3) of subdivision (c); substituted "30 consecutive" for "30-consecutive" after "the period of" in subdivision (h). Stats. 2008, Ch. 521 (SB 1247), in effect January 1, 2009, revised subparagraph (A) in paragraph (1) of subdivision (b) which read, "The low-income housing project shall be located in California and shall meet either of the following requirements:", added new subparagraph (C)(ii) to paragraph (1) of, relettered former subparagraph (C)(ii) as (C)(iii) and added "a" after "preliminary reservation of" in subparagraph (C)(iii) in paragraph (1) of subdivision (b); and added subparagraphs (4) and (5) to subdivision (g); substituted "30 consecutive" for "30-consecutive" after "the period of" in subdivision (h). Stats. 2009, Ch. 632 (SB 251), in effect January 1, 2010, added "of the Health and Safety Code" after "Section 50199.20" in subparagraph (1)(C)(ii) of subdivision (b).

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12207. Disallowed tax credit. (a) Notwithstanding any other provision of this part, no credit shall be allowed under Section 12206, 12208, or 12209 against the tax imposed on Medi-Cal managed care plans pursuant to Section 12201.

deletion(b) This section shall become inoperative on July 1, 2011, and, as of January 1, 2012, is repealed, unless a later enacted statute, that becomes operative on or before January 1, 2012, deletes or extends the dates on which it becomes inoperative and is repealed.

History.—Added by Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009. Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, deleted former subdivision (b) which provided that "This section shall remain in effect only until January 1, 2011, and as of that date is repealed." and added a new subdivision (b).

12208. Pilot project insurance tax credit. (a) There shall be allowed as a credit against the amount of tax, as defined in Section 28 of Article XIII of the California Constitution, an amount equal to the amount of the gross premiums tax due from the insurer on account of pilot project insurance for previously uninsured motorists.

(b) As used in this section "pilot project insurance for previously uninsured motorists" means motor vehicle liability insurance issued by an insurer under Article 5.5 (commencing with Section 11629.7) or Article 5.6 (commencing with Section 11629.9) of Chapter 1 of Part 3 of Division 2 of the Insurance Code, with respect to an insured who, at the time of the issuance, owned or operated a motor vehicle without proof of financial responsibility as defined in Section 16020 of the Vehicle Code, and any renewal of that insurance.

History.—Added by Stats. 1999, Ch. 808 (AB 1432), in effect January 1, 2000.

12209. Community development financial institution tax credit.(a) For each year beginning on or after January 1, 1999, and before January 1, 2012, there shall be allowed as a credit against the amount of tax, as defined in Section 28 of Article XIII of the California Constitution, an amount equal to 20 percent of the amount of each qualified investment made by a taxpayer during the taxable year into a community development financial institution that is certified by the Department of Insurance, California Organized Investment Network, or any successor thereof.

(b) For purposes of determining any tax that may be imposed under Section 685 of the Insurance Code on a taxpayer not organized under the laws of this state, the amount of the credit allowed by subdivision (a) shall be treated as a tax paid under Section 12201 or Section 28 of Article XIII of the California Constitution.

(c) (1) Notwithstanding any other provision of this part, no credit shall be allowed under this section unless the California Organized Investment Network, or its successor within the Department of Insurance, certifies that the investment described in subdivision (a) qualifies for the credit under this section and certifies the total amount of the credit allocated to the taxpayer pursuant to this section.

(2) No credit shall be allowed by this section unless the applicant and the taxpayer provide satisfactory substantiation to, and in the form and manner requested by, the Department of Insurance, California Organized Investment

Network, or any successor thereof, that the investment is a qualified investment as defined in paragraph (1) of subdivision (g). In addition, on or after January 1, 2007, the aggregate certified investments shall meet all of the following:

(A) Each year, until October 1, the total qualified investments certified in any calendar year from any one community development financial institution together with its affiliates, as defined in Section 1215 of the Insurance Code, does not exceed the lesser of either ten million dollars ($10,000,000) or 40 percent of the annual aggregate amount of qualified investments authorized in the first sentence of paragraph (3), or until a date or an amount determined in regulations promulgated by the Insurance Commissioner.

(B) Each year, until July 1, the annual aggregate amount of qualified investments specified in the first sentence of paragraph (3) that is reserved for investments by admitted insurers is 25 percent, or until a date or an amount determined in regulations promulgated by the Insurance Commissioner.

(C) Each year, until July 1, the annual aggregate amount of qualified investments authorized in the first sentence of paragraph (3) that is reserved for individual investment amounts of less than or equal to three hundred thousand dollars ($300,000) is three million dollars ($3,000,000), or until a date or amounts determined in regulations promulgated by the Insurance Commissioner.

(3) The aggregate amount of qualified investments made by all taxpayers pursuant to this section, Section 17053.57, and Section 23657 shall not exceed ten million dollars ($10,000,000) for each calendar year. However, if the aggregate amount of qualified investments made in any calendar year is less than ten million dollars ($10,000,000), the difference may be carried over to the next year, and any succeeding year during which this section remains in effect, and added to the aggregate amount authorized for those years.

(d) The community development financial institution shall do all of the following:

(1) Apply to the Department of Insurance, California Organized Investment Network, or its successor, for certification of its status as a community development financial institution.

(2) Apply to the Department of Insurance, California Organized Investment Network, or its successor, on behalf of the taxpayer for certification of the amount of the investment and the credit amount allocated to the taxpayer, obtain the certification, and retain a copy of the certification.

(3) Obtain the taxpayer's California company identification number for tax administration purposes and provide this information to the Department of Insurance, California Organized Investment Network, or its successor, with the application required in paragraph (2).

(4) Provide an annual listing to the State Board of Equalization, in the form and manner agreed upon by the State Board of Equalization and the Department of Insurance, California Organized Investment Network, or its successor, of the names and taxpayer's California company identification numbers of any taxpayer who makes any withdrawal or partial withdrawal of a qualified investment before the expiration of 60 months from the date of the qualified investment.

(5) Submit reports to the department, COIN, or any successor thereof, as required pursuant to subdivision (a) of Section 12939.1 of the Insurance Code.

(e) The Insurance Commissioner may develop instructions, procedures, and standards for applications, and for administering the criteria for the evaluation of applications under this section. The Insurance Commissioner may, from time to time, issue regulations to implement the provisions of this section.

(f) The Department of Insurance, California Organized Investment Network, or any successor thereof, shall do all of the following:

(1) Accept and evaluate applications for certification from financial institutions and issue certificates that the applicant is a community development financial institution qualified to receive qualified investments. To receive a certificate, an applicant shall satisfy the Department of Insurance, California Organized Investment Network, or any successor thereof, that it meets the specific requirements to be a community development financial institution for this state program as defined in paragraph (2) of subdivision (g). The certificate may be issued for a specified period of time, and may include reasonable conditions to effectuate the intent of this section. The Insurance Commissioner may suspend or revoke a certification, after affording the institution notice and the opportunity to be heard, if the commissioner finds that an institution no longer meets the requirement for certification.

(2) Accept and evaluate applications for certification from any community development financial institution on behalf of the taxpayer and issue certificates to taxpayers in an aggregate amount that shall not exceed the limit specified in subdivision (c). The certificate shall include the amount eligible to be made as an investment that qualifies for the credit and the total amount of the credit to which the taxpayer is entitled for the year. Applications for tax credits shall be accepted and evaluated throughout the year. Certificates shall be issued in the order that complete applications are received. If the aggregate amount of tax credit applications exceeds the amount of tax credits available, tax credits shall be approved for qualifying investments on a first-come-first-served basis as determined by the order in which complete applications are received. All applications received on the same business day are deemed to be received at the same time. If the aggregate amount of tax credit applications received on a single business day exceeds the amount of tax credits available, tax credits shall be approved for qualifying investments received on that day on a pro rata basis.

(3) Provide an annual listing to the State Board of Equalization, in the form or manner agreed upon by the State Board of Equalization and the Department of Insurance, California Organized Investment Network, or its successor, of the taxpayers who were issued certificates, their respective National Association of Insurance Commissioners company number and employer's tax identification number, the amount of the qualified investment made by each taxpayer, and the total amount of qualified investments.

(4) Include information specified pursuant to subdivision (b) of Section 12939.1 of the Insurance Code in the report required by Section 12922 of the Insurance Code.

(g) For purposes of this section:

(1) "Qualified investment" means an investment that is a deposit or loan that does not earn interest, or an equity investment, or an equity-like debt instrument that conforms to the specifications for these instruments as prescribed by the United States Department of the Treasury, Community Development Financial Institutions Fund, or its successor, or, in the absence of that prescription, as defined by the Insurance Commissioner. The investment must be equal to or greater than fifty thousand dollars ($50,000) and made for a minimum duration of 60 months. During that 60-month period, the community development financial institution shall have full use and control of the proceeds of the entire amount of the investment as well as any earnings on the investment for its community development purposes. The entire amount of the investment shall be received by the community development financial institution before the application for the tax credit is submitted. The community development financial institution shall use the proceeds of the investment for a purpose that is consistent with its community development mission and for the benefit of economically disadvantaged communities and low-income people in California.

(2) "Community development financial institution" means a private financial institution located in this state that is certified by the Department of Insurance, California Organized Investment Network, or its successor, that, consistent with the findings, declarations, and intent set forth in Section 12939 of the Insurance Code, has community development as its primary mission, and that lends in urban, rural, or reservation-based communities in this state. A community development financial institution may include a community development bank, a community development loan fund, a community development credit union, a microenterprise fund, a community development corporation-based lender, or a community development venture fund.

(h) (1) If a qualified investment is withdrawn before the end of the 60th month and not reinvested in another community development financial institution within 60 days, there shall be added to the "tax," as defined in Section 28 of Article XIII of the California Constitution, for the year in which the withdrawal occurs, the entire amount of any credit previously allowed under this section.

(2) If a qualified investment is reduced before the end of the 60th month, but not below fifty thousand dollars ($50,000), there shall be added to the "tax," as defined in Section 28 of Article XIII of the California Constitution, for the taxable year in which the reduction occurs, an amount equal to 20 percent of the total reduction for the year.

(i) In the case where the credit allowed by this section exceeds the "tax," the excess may be carried over to reduce the "tax" for the next four years, or until the credit has been exhausted, whichever occurs first.

(j) The State Board of Equalization shall, as requested by the Department of Insurance, California Organized Investment Network, or its successor, advise and assist in the administration of this section.

(k) This section shall remain in effect only until December 31, 2012, and as of that date is repealed.

History.—Added by Stats. 1999, Ch. 821 (AB 145), in effect January 1, 2000. Stats. 2001, Ch. 535 (SB 409), in effect October 5, 2001, substituted "2007" for "2002" in subdivision (a), substituted "investment" for "deposit" in subdivision (a), added ", or its successor within" after "Organized Investment Network" in subdivision (c), substituted "investment" for deposit in subdivision (c), substituted "investments" for "deposits" in subdivision (c), added "However, if the aggregate . . . " after "each calendar year." in subdivision (c), added "Department of Insurance," after "Apply to the" in subparagraph (d)(1) and (d)(2), added "amount of the investment and the" after "certification of the" to subparagraph (d)(2), substituted "taxpayer, obtain the . . . of the certification." for "taxpayer prior to . . . from the taxpayer." in subparagraph (d)(2), renumbered subparagraph (d)(4) as subparagraph (d)(3) and subparagraph (d)(5) as subparagraph (d)(4), added "Department of Insurance," after "information to the" of subparagraph (d)(3), substituted "application" for "transmittal" in subparagraph (d)(3), substituted "(2)" for "(3)" in subparagraph (d)(3), substituted "Board of Equalization" for "board" in subparagraph (d)(4), added "Department of Insurance," after "Equalization and the" in subparagraph (d)(4), substituted "investment" for "deposit" in subparagraph (d)(4), added "Department of Insurance," prior to "California Organized Investment" in subdivision (e), substituted "investments" for "deposits" in subparagraph (e)(1), substituted "an" for "a deposit or equity" in subparagraph (e)(2), substituted "Board of Equalization" for "board" in subparagraph (e)(3), added "Department of Insurance," prior to "California Organized Investment" in subparagraph (e)(3), substituted "investment" for "deposit" in subparagraph (e)(3), substituted "investments" for "deposits" in subparagraph (e)(3), substituted "investment" for "deposit" in subparagraph (f)(1), added "or loan" after "means a deposit" in subparagraph (f)(1), deleted "that is" after "an equity investment," in subparagraph (f)(1), added "or an equity . . . investments must be" after "an equity investment," in subparagraph (f)(1), added "Department of Insurance" after "certified by the" in subparagraph (f)(2), substituted "investment" for "deposit" in subparagraph (g)(1), deleted "redeposited or" after "month and not" in subparagraph (g)(1), substituted "investment" for "deposit" in subparagraph (g)(2), substituted "taxable" for "income" in subparagraph (g)(2), relettered subdivision (i) as subdivision (j), added new subdivision (i), substituted "2007" for "2002" in subdivision (j) and deleted "However, any unused . . . credit is exhausted." in subdivision (j). Stats. 2002, Ch. 664 (AB 3034), in effect January 1, 2003, deleted "is" after "fifty thousand dollars ($50,000) and" in the second sentence of subparagraph (f)(1), and added a comma after "Investment Network" in subdivision (i). Stats. 2006, Ch. 580 (AB 2831), in effect September 28, 2006, substituted "2012" for "2007" after "January 1, 1999, and before January 1," in, added "taxable" after "by a taxpayer during the" in, added "that is certified by the Department of Insurance, California Organized Investment Network, or any successor thereof" in subdivision (a); redesignated former subdivision (c) as (c)(1), added paragraph (2) and subparagraphs (A), (B), and (C) to subdivision (c), redesignated second sentence in former subdivision (c) as paragraph (3) in subdivision (c); added paragraph (5) to subdivision (d); added "The Insurance Commissioner may develop instructions, procedures, and standards for applications, and for administering the criteria for the evaluation of applications under this section. The Insurance Commissioner may, from time to time, issue regulations to implement the provisions of this section." to subdivision (e); relettered former subdivisions "(e)", "(f)", "(g) (1)", "(h)", "(i)", and "(j)" as "(f)", "(g)", "(h) (1)", "(i)", "(j)", and "(k)"; added "and evaluate" after "Accept" to, added "To receive a certificate, an applicant shall satisfy the . . . no longer meets the requirement for certification." to subdivision (f)(1); added "and evaluate" after "Accept" to, added "Applications for tax credits shall be accepted and evaluated throughout the year." to, added "If the aggregate amount of tax credit applications . . . approved for qualifying investments received on that day on a pro rata basis." to subdivision (f)(2); added paragraph (4) to subdivision (f); added "an investment that is" after "Qualified investment" means", added ", or, in the absence of that prescription, as defined by the Insurance Commissioner. The investment", deleted "All qualified investments" after ", Community Development Financial Institutions Fund, or its successor" , added "During that 60-month period, the community development financial institution . . . economically disadvantaged communities and low-income people in California." to subdivision (g)(1); added ", consistent with the findings, declarations, and intent set forth in Section 12939 of the Insurance Code" to subdivision (g)(2); and substituted "2012" for "2007" after "until December 31," in subdivision (k).

12210. Disclosure of tax. (a) A life insurer or life insurance agent shall inform his or her client of the tax imposed under this part.

(b) A life insurer or life insurance agent who quotes only one price that includes the gross premiums tax is exempt from compliance with the requirements of subdivision (a).

History.—Added by Stats. 2000, Ch. 614 (AB 2312), in effect January 1, 2001.

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Article 2. Basis of Tax for Other Than Title Insurers

12221. "Gross premiums" as basis of tax. In the case of an insurer not transacting title insurance in this State, the basis of the tax is, in respect to each year, the amount of gross premiums, less return premiums, received in such year by such insurer upon its business done in this State. "Gross premiums" do not include premiums received for reinsurance and for ocean marine insurance. Gross premiums of reciprocal or interinsurance exchanges shall be determined as provided in Section 1530 of the Insurance Code. For purposes of the tax imposed by this chapter, "gross premiums" shall be deemed to include home protection contract fees defined in Section 12740 of the Insurance Code.

History.—Added by Stats. 1961, p. 1982, operative January 1, 1962. Derived from former Section 12252. Stats. 1981, Ch. 820, in effect January 1, 1982, added the fourth sentence.

Gross premiums.—The term "gross premiums" includes the following: assessments ( Bankers Life Co. v. Richardson (1923) 192 Cal. 113; Western Travelers Accident Association v. Johnson (1936) 14 Cal.App.2d 306); the consideration paid for annuity contracts (Equitable Life Assur. Society v. Johnson (1942) 53 Cal.App.2d 49); the full sums received by bail bond agents from those desiring bail bonds (Groves v. City of Los Angeles (1953) 40 Cal.2d 751).

Fees which are charged all applicants for membership in a mutual company do not constitute gross premiums within the meaning of this section, since they are not a part of the consideration paid for insurance, when the membership entitles the holder only to apply for insurance and not to receive it and the fees are not returnable if insurance is rejected or the member elects not to apply for it. State Farm Mutual Automobile Insurance Co. v. Carpenter (1939) 31 Cal.App.2d 178.

Amounts retained by an insurance company from wages due its employees participating in a voluntary retirement plan are not insurance premiums under this section where the company has no profit motive in establishing the plan. California-Western States Life Insurance Company v. State Board of Equalization (1957) 151 Cal.App.2d 559.

Gross premiums include amounts paid as reimbursement for additional expense incurred in selling insurance on an installment basis such as additional bookkeeping expense and collection expense. Allstate Insurance Company v. State Board of Equalization (1959) 169 Cal.App.2d 165.

Insurer developed "mini-met" plan pursuant to which existing group health insurance policyholders assumed the obligation to pay claims of the insured employees up to a certain "trigger-point" amount. Insurer was liable for claims above the trigger-point amount. Taxable gross premiums includes net premiums (calculated with reference to amounts paid out of policyholders' funds) as well as loading (amounts paid directly to the insurer). Metropolitan Life Insurance Co. v. State Board of Equalization (1982) 32 Cal.3d 649.

Although a service charge in connection with a premium financing plan is part of taxable gross premiums, the interest charged in connection with the plan is nontaxable investment income. Mercury Casualty Co. v. State Board of Equalization (1983) 141 Cal.App.3d 43.

Auto club members paying for insurance obtained through the club on an installment basis paid the club a $1 service fee along with each payment. The club retained the fee and forwarded the balance to the insurer. The service fee was part of the insurer's taxable gross premiums. Interinsurance Exchange v. State Board of Equalization (1984) 156 Cal.App.3d 606.

ERISA does not preempt California's method of taxation pursuant to Metropolitan Life Insurance Co. v. State Board of Equalization (1982) 32 Cal.3d 649. General Motors Corp. v. California State Board of Equalization (9th Cir. 1987) 815 F.2d 1305, cert. denied (1988) 485 U.S. 941.

The "true economic substance" of the insurer's SFGP policy was that the employer bears the bulk of the insurance risk in acting as an independent insurer for all claims below the liability limit; that the employer in performing its independent obligations under the SFGP is not acting as "a mere agent" of the insurer for the collection of premiums; and the obligations of the insurer are not "inextricably intertwined" with those of the employers. Accordingly tax applies only to the amounts actually paid as premiums to the insurer and not to the amount of claims paid from employer funds. Aetna Life Ins. Co. v. State Board of Equalization (1992) 11 Cal.App.4th 1207.

An insurer issuing minimum premium policies taxable under Metropolitan Life Ins. Co. v. State Board of Equalization (1982) 32 Cal.3d 649 was not denied equal protection even though the same policies issued to policyholders who are Taft-Hartley Trusts would be taxed differently. Great-West Life Assurance v. State Board of Equalization (1993) 19 Cal.App.4th 1553.

Where only one factor in Metropolitan Life Ins. Co. v. State Board of Equalization (1982) 32 Cal.3d 649 was present (regarding claims administration by an insurance company) and the other three factors were absent and the trigger point was well above 100 percent of expected claims thereby shifting the insurance risk to the employer, the employer, and not the insurance company, was the insurer as to the pretrigger point claims paid from employer funds, and the insurance company was therefore not liable for gross premiums tax on that aspect of the contracts. Prudential Ins. Co. v. State Board of Equalization (1993) 21 Cal.App.4th 458.

The amount of an insurer's taxable gross premiums does not include the amount of claims paid out of contractholder's funds when the insurer is fulfilling an administrative services contract and not providing insurance. Lincoln National Life Insurance Co. v. State Board of Equalization (1994) 30 Cal.App.4th 1411.

Return premiums.—The term "return premiums" refers to that portion of the gross premiums received by an insurance company which has been unearned and which the company is lawfully bound to return. It does not include dividends paid to members of a mutual company. Northwestern Mutual Life Insurance Co. v. Roberts (1918) 177 Cal. 540.

The cash or surrender values paid upon the cancellation of life policies are not "return premiums," but values paid on the cancellation of pure annuity contracts prior to the starting of payments to the annuitant are by contract "return premiums" within the constitutional meaning. Equitable Life Assur. Society v. Johnson (1942) 53 Cal.App.2d 49.

Dividends.—A mutual life insurance company is not subject to taxation on that portion of a premium which is satisfied by the application of a dividend representing the excess of the previous year's premium over the actual cost of the insurance furnished. Mutual Benefit Life Insurance Co. v. Richardson (1923) 192 Cal. 369. [Cf. Northwestern Mutual Life Insurance Co. v. Roberts (1918) 177 Cal. 540.]

Doing business.—An insurance association organized in California to take over the business of a Nebraska association was, in accepting in this State the applications of the members of the foreign association to continue their insurance, doing business in this State. Assuming, however, that the contracts of insurance were made in their entirety outside the State, all amounts received on such contracts were subject to the tax, the association having withdrawn from the other State and thereafter conducted its business under its California license, and all payments being sent by mail to its office in California. Western Travelers Accident Association v. Johnson (1936) 14 Cal.App.2d 306.

A foreign insurance company is not subject to tax on premiums remitted directly to its home office by mail after it had actually ceased to do business in California and its certificate of authority had expired. People v. Alliance Life Insurance Co. (1944) 65 Cal.App.2d 808.

Renewal premiums collected at the Nevada office of a life insurance company which was incorporated in California and has its principal place of business in this State from policyholders residing in states in which the company is not licensed to do business are "premiums received * * * upon its business done in this State" within the meaning of this section, where all of the company's services to these policyholders, other than the collection of premiums, are rendered to them at its home office in California. Occidental Life Insurance Co. v. State Board of Equalization (1956) 139 Cal.4th 468.

Amounts designated by an inter-insurance exchange as savings to its subscribers but which amounts were actually paid by the exchange to attorney-in-fact were part of taxable gross premiums and should not be considered part of savings within the words "returned to subscribers and/or credited to their accounts as savings" as used in Ins. Code section 1530. Industrial Indem. Exch. v. State Board of Equalization (1945) 26 Cal.2d 772.

Reciprocal or inter-insurance exchanges.—In computing its gross premiums tax liability for the business year 1964, the taxpayer, a reciprocal inter-insurance exchange, was not entitled to deduct savings dividends which it declared to subscribers (policyholders) in 1964 on policies expiring in 1965, to the extent that those dividends remained on the taxpayer's books on December 31, 1964, as declared and unpaid. Such amounts were not "credited" to the accounts of subscribers, within the meaning of Section 1530 of the Insurance Code, until such time as the policies in question expired and the formerly unpaid dividends were either paid to the subscribers or applied by them against renewal premiums. California State Auto. Assn. Inter-Insurance Bureau v. State Board of Equalization (1974) 44 Cal.App.3d 13.

12222. Funds for annuity purchases. Funds accepted by a life insurer under an agreement which provides for an accumulation of funds to purchase annuities at future dates may be considered as "gross premiums received" either upon receipt or upon the actual application of such funds to the purchase of annuities. However, any interest credited to funds accumulated while under the latter alternative shall also be included in "gross premiums received," and any funds taxed upon receipt, including any interest later credited thereto, shall not be subject to taxation upon the purchase of annuities. Each life insurer shall signify on its premium tax return covering premiums for the calendar year 1957 its election between such two alternatives. Thereafter an insurer shall not change such election without the consent of the commissioner. Any such funds taxed as "gross premiums" shall, in the event of withdrawal of the funds before their actual application to the purchase of annuities, be eligible to be included as "return premiums" if eligible therefor under the provisions of Section 28 of Article XIII of the Constitution.

History.—Added by Stats. 1961, p. 1983, operative January 1, 1962. Derived from former Section 12252.5. Stats. 1974, p. 620, operative November 6, 1974, substituted "Section 28" for "Section 144/5".

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Article 3. Basis of Tax for Title Insurers

12231. "Income upon business" as basis of tax. In the case of an insurer transacting title insurance in this State, the basis of the tax is, in respect to each year, all income upon business done in this State, except:

(a) Interest and dividends.

(b) Rents from real property.

(c) Profits from the sale or other disposition of investments.

(d) Income from investments.

History.—Added by Stats. 1961, p. 1983, operative January 1, 1962. Derived from former Section 12253.

Measure of tax.—"All income" of a title insurer for purposes of the insurance tax does not include amounts paid by independent underwritten title companies for their own negligence. Title Insurance Co. v. State Board of Equalization (1992) 4 Cal.4th 715.

12232. "Investments" defined. "Investments," as used in Section 12231, includes property acquired by an insurer in the settlement or adjustment of claims against it but excludes investments in title plants and title records. Income derived directly or indirectly from the use of title plants and title records is included in the basis of the tax.

History.—Added by Stats. 1961, p. 1983, operative January 1, 1962. Derived from former Section 12254.

12233. Title insurer doing trust business. [Repealed by Stats. 1996, Ch. 1063, in effect January 1, 1997.]

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Article 4. Principal Office Deduction

[Repealed effective June 8, 1976, by Stats. 1975, Ch. 938.]

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Article 4. Basis of Tax for Medi-Cal Managed Care Plans*

* Article 4 was added by Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009.

12240. "Total operating revenue" as basis of tax. In the case of a Medi-Cal managed care plan, the basis of the tax is, in respect to each year, total operating revenue.

12241. "Total operating revenue" defined. For purposes of this article, "total operating revenue" means all amounts received by a Medi-Cal managed care plan in premium or capitation payments for the coverage or provision of all health care services, including, but not limited to, Medi-Cal services. Total operating revenue shall not include amounts received by a Medi-Cal managed care plan pursuant to a subcontract with a Medi-Cal managed care plan to provide health care services to Medi-Cal beneficiaries.

12242. Repeal date. deletionThis article shall become inoperative on July 1, 2011, and, as of January 1, 2012, is repealed, unless a later enacted statute, that becomes operative on or before January 1, 2012, deletes or extends the dates on which it becomes inoperative and is repealed.

History.—Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, deleted former language that provided "This article shall remain in effect only until January 1, 2011, and as of that date is repealed." and added new language.

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Article 5. Prepayments

[Repealed by Stats. 1969, p. 1473, in effect August 14, 1969, operative January 1, 1970.]

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Article 5. Prepayments*

* Article 5 was added by Stats. 1969, p. 1473, in effect August 14, 1969, operative January 1, 1970.

Text of section operative through June 30, 2011

12251. Prepayments. (a) For the calendar year 1970, and each calendar year thereafter, insurers transacting insurance in this state and whose annual tax for the preceding calendar year was five thousand dollars ($5,000) or more shall make prepayments of the annual tax for the current calendar year imposed by Section 28 of Article XIII of the California Constitution and this part, provided that no prepayments shall be made with respect to the tax on ocean marine insurance underwriting profit or any retaliatory tax.

(b) Medi-Cal managed care plans shall make prepayments of the tax imposed by Section 12201 for the current calendar year, except that no prepayments shall be required prior to the effective date of the act adding this subdivision, and no penalties and interest shall be imposed pursuant to Section 12261 for not making those prepayments.

deletion(c) This section shall become inoperative on July 1, 2011, and, as of January 1, 2012, is repealed, unless a later enacted statute, that becomes operative on or before January 1, 2012, deletes or extends the dates on which it becomes inoperative and is repealed.

History.—Added by Stats. 1974, p. 620, operative November 6, 1974, substituted "Section 28" for "Section 144/5". Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009, designated the first sentence as subdivision (a); and added subdivisions (b) and (c). Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, deleted former subdivision (c) which provided that "This section shall remain in effect only until January 1, 2011, and as of that date is repealed." and added a new subdivision (c).

Text of section operative deletionJuly 1, 2011

12251. Prepayments. (a) For the calendar year 1970, and each calendar year thereafter, insurers transacting insurance in this state and whose annual tax for the preceding calendar year was five thousand dollars ($5,000) or more shall make prepayments of the annual tax for the current calendar year imposed by Section 28 of Article XIII of the California Constitution and this part, provided that no prepayments shall be made with respect to the tax on ocean marine insurance underwriting profit or any retaliatory tax.

(b) This section shall become operative on deletionJuly 1, 2011.

History.—Added by Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009, but operative January 1, 2011. Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, substituted "July 1, 2011" for "January 1, 2011" after "operative on" in subdivision (b).

12252. Notification; amounts due. [Repealed by Stats. 1982, Ch. 327, in effect June 30, 1982.]

Text of section operative through June 30, 2011

12253. Remittance of prepayment. (a) Each insurer and Medi-Cal managed care plan required to make prepayments shall remit them on or before each of the dates of April 1st, June 1st, September 1st and December 1st. of the current calendar year. Remittances for prepayments shall be made payable to the Controller and shall be delivered to the office of the commissioner, accompanied by a prepayment form prescribed by the commissioner.

deletion(b) This section shall become inoperative on July 1, 2011, and, as of January 1, 2012, is repealed, unless a later enacted statute, that becomes operative on or before January 1, 2012, deletes or extends the dates on which it becomes inoperative and is repealed.

History.—Stats. 1982, Ch. 327, in effect June 30, 1982, operative October 1, 1982, substituted "April 1st . . . December 15th" for "May 15th . . . November 15th" after "dates of". Stats. 2006, Ch. 740 (AB 2125), in effect January 1, 2007, substituted "1st" for "15th" after "June" "September" and "December" after "April 1st" in the first sentence. Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009, designated the first paragraph as subdivision (a) and added "and Medi-Cal managed care plan" after "Each insurer" in subdivision (a); and added subdivision (b). Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, added a comma after "September 1st" in the first sentence of subdivision (a), deleted former subdivision (b) which provided that "This section shall remain in effect only until January 1, 2011, and as of that date is repealed." and added a new subdivision (b).

Text of section operative deletionJuly 1, 2011

12253. Remittance of prepayment. (a) Each insurer required to make prepayments shall remit them on or before each of the dates of April 1st, June 1st, September 1st, and December 1st of the current calendar year. Remittances for prepayments shall be made payable to the Controller and shall be delivered to the office of the commissioner, accompanied by a prepayment form prescribed by the commissioner.

(b) This section shall become operative on deletionJuly 1, 2011.

History.—Added by Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009, but operative January 1, 2011. Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, substituted "July 1, 2011" for "January 1, 2011" after "operative on" in subdivision (b).

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12253.5. Remittance of prepayment; 1983 calendar year. [Repealed by Stats. 2005, Ch. 312, in effect January 1, 2006.]

Text of section operative through June 30, 2011

12254. Amount of prepayment. (a) (1) For each insurer, the amount of each prepayment shall be 25 percent of the amount of the annual insurance tax liability reported on the return of the insurer for the preceding calendar year.

(2) For each Medi-Cal managed care plan, the amount of each prepayment shall be 25 percent of the amount of tax the plan estimates as the amount of tax imposed by Section 12201 with respect to the plan.

(b) In establishing the prepayment amount of an insurer that has acquired the business of another insurer, the amount of tax liability of the acquiring insurer reported for the preceding calendar year shall be deemed to include the amount of tax liability of the acquired insurer reported for that year.

deletion(c) This section shall become inoperative on July 1, 2011, and, as of January 1, 2012, is repealed, unless a later enacted statute, that becomes operative on or before January 1, 2012, deletes or extends the dates on which it becomes inoperative and is repealed.

History.—Stats. 1978, Ch. 827, effective January 1, 1979, deleted ", less any deduction for real estate taxes taken thereon in accordance with Section 12241" following "calendar year" in (a). Stats. 1982, Ch. 327, in effect June 30, 1982, operative October 1, 1982, substituted "25" for "264/5" before "percent" in subdivision (a). Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009, substituted "(a)(1)" for "(a)", added "For each insurer" before "the amount of each prepayment", substituted "the" for "The" before "amount of each prepayment", added "the" before "annual insurance tax", and added paragraph (2) in subdivision (a); substituted "that" for "who" after "amount of an insurer" in subdivision (b), and added subdivision (c). Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, deleted former subdivision (c) which provided that "This section shall remain in effect only until January 1, 2011, and as of that date is repealed." and added a new subdivision (c).

Text of section operative deletionJuly 1, 2011

12254. Amount of prepayment. (a) The amount of each prepayment shall be 25 percent of the amount of the annual insurance tax liability reported on the return of the insurer for the preceding calendar year.

(b) In establishing the prepayment amount of an insurer that has acquired the business of another insurer, the amount of tax liability of the acquiring insurer reported for the preceding calendar year shall be deemed to include the amount of tax liability of the acquired insurer reported for that year.

(c) This section shall become operative on deletionJuly 1, 2011.

History.—Added by Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009, but operative January 1, 2011. Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, substituted "July 1, 2011" for "January 1, 2011" after "operative on" in subdivision (c).

12255. Extension of time. The commissioner, for good cause shown, may extend for not to exceed 10 days the time for making a prepayment. The extension may be granted at any time, provided that a request therefor is filed with the commissioner within or prior to the period for which the extension may be granted. Interest at the rate prescribed by Section 12631 shall be paid for the period of time for which the extension is granted.

History.—Stats. 1982, Ch. 327, in effect June 30, 1982, substituted "Interest . . . 12631" for "No interest" at the beginning of the third sentence.

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12256. Payments credited on annual tax. All amounts paid under this article, other than penalties and interest, shall be allowed as a credit on the annual tax imposed by Section 28 of Article XIII of the California Constitution and this part.

History.—Added by Stats. 1974, p. 621, operative November 6, 1974, substituted "Section 28" for "Section 144/5".

Text of section operative through June 30, 2011

12257. Overpayment. (a) If the total amount of prepayments for any calendar year exceeds the amount of annual tax for that year, the excess shall be treated as an overpayment of annual tax and, at the election of the insurer or Medi-Cal managed care plan, may be credited against the amounts due and payable for the first prepayment of the following year. Any amount of the overpayment not so credited shall be allowed as a credit or refund under Article 2 (commencing with Section 12977) of Chapter 7 of this part.

deletion(b) This section shall become inoperative on July 1, 2011, and, as of January 1, 2012, is repealed, unless a later enacted statute, that becomes operative on or before January 1, 2012, deletes or extends the dates on which it becomes inoperative and is repealed.

History.—Added by Stats. 1984, Ch. 39, effective March 19, 1984, added "at the election . . . credited shall" after "annual tax and". Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009, designated the first sentence as subdivision (a) and added "or Medi-Cal managed care plan" after "election of the insurer" in subdivision (a); and added subdivision (b). Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, deleted former subdivision (b) which provided that "This section shall remain in effect only until January 1, 2011, and as of that date is repealed." and added the new subdivision (b).

Text of section operative deletionJuly 1, 2011

12257. Overpayment. (a) If the total amount of prepayments for any calendar year exceeds the amount of annual tax for that year, the excess shall be treated as an overpayment of annual tax and, at the election of the insurer, may be credited against the amounts due and payable for the first prepayment of the following year. Any amount of the overpayment not so credited shall be allowed as a credit or refund under Article 2 (commencing with Section 12977) of Chapter 7 of this part.

(b) This section shall become operative on deletionJuly 1, 2011.

History.—Added by Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009, but operative January 1, 2011. Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, substituted "July 1, 2011" for "January 1, 2011" after "operative on" in subdivision (b).

Text of section operative through June 30, 2011

12258. Penalty and interest. (a) Any insurer or Medi-Cal managed care plan that fails to pay any prepayment within the time required shall pay a penalty of 10 percent of the amount of the required prepayment, plus interest at the modified adjusted rate per month, or fraction thereof, established pursuant to Section 6591.5, from the due date of the prepayment until the date of payment but not for any period after the due date of the annual tax. Assessments of prepayment deficiencies may be made in the manner provided by deficiency assessments of the annual tax.

deletion(b) This section shall become inoperative on July 1, 2011, and, as of January 1, 2012, is repealed, unless a later enacted statute, that becomes operative on or before January 1, 2012, deletes or extends the dates on which it becomes inoperative and is repealed.

History.—Added by Stats. 1975, Ch. 661, operative to interest accruing on or after January 1, 1978, substituted "1 percent" for "one-half of 1 percent." Stats. 1982, Ch. 5, First Extra Session, in effect May 27, 1982, substituted "adjusted . . . 19269" for "rate . . . thereof" before "from" in the first sentence. Stats. 1984, Ch. 1020, operative July 1, 1985, added "modified" before "adjusted", deleted "annual" before "rate", added "per month, or fraction thereof," before "established" and substituted "Section 6591.5" for "Section 19269" in the first sentence. Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009, designated the first sentence as subdivision (a), added "or Medi-Cal managed care plan" after "Any insurer", and substituted "that" for "who" before "fails to pay any prepayment" in subdivision (a); and added subdivision (b). Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, deleted former subdivision (b) which provided that "This section shall remain in effect only until January 1, 2011, and as of that date is repealed." and added the new subdivision (b).

Text of section operative deletionJuly 1, 2011

12258. Penalty and interest. (a) Any insurer that fails to pay any prepayment within the time required shall pay a penalty of 10 percent of the amount of the required prepayment, plus interest at the modified adjusted rate per month, or fraction thereof, established pursuant to Section 6591.5, from the due date of the prepayment until the date of payment but not for any period after the due date of the annual tax. Assessments of prepayment deficiencies may be made in the manner provided by deficiency assessments of the annual tax.

(b) This section shall become operative on deletionJuly 1, 2011.

History.—Added by Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009, but operative January 1, 2011. Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, substituted "July 1, 2011" for "January 1, 2011" after "operative on" in subdivision (b).

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12259. State Compensation Insurance Fund. The provisions of this article apply to the State Compensation Insurance Fund as well as to private insurers.

Text of section operative through June 30, 2011

12260. Relief from prepayments. (a) Notwithstanding any other provision of this article, the commissioner may relieve an insurer or Medi-Cal managed care plan of its obligation to make prepayments where the insurer or Medi-Cal managed care plan establishes to the satisfaction of the commissioner that the insurer has ceased to transact insurance in this state or the Medi-Cal managed care plan has ceased to operate a plan in this state, or the insurer's or Medi-Cal managed care plan's annual tax for the current year will be less than five thousand dollars ($5,000).

deletion(b) This section shall become inoperative on July 1, 2011, and, as of January 1, 2012, is repealed, unless a later enacted statute, that becomes operative on or before January 1, 2012, deletes or extends the dates on which it becomes inoperative and is repealed.

History.—Added by Stats. 1971, p. 3528, operative on and after January 1, 1972. Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009, designated the first sentence as subdivision (a), added the phrase "or Medi-Cal managed care plan" throughout the first sentence, deleted "either" after "commissioner that", and added "or the Medi-Cal managed care plan has ceased to operate a plan in this state" after "transact insurance in this state" in subdivision (a); and added subdivision (b). Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, deleted former subdivision (b) which provided that "This section shall remain in effect only until January 1, 2011, and as of that date is repealed." and added the new subdivision (b).

Text of section operative deletionJuly 1, 2011

12260. Relief from prepayments. Notwithstanding any other provision of this article, the commissioner may relieve an insurer of its obligation to make prepayments where the insurer establishes to the satisfaction of the commissioner that either the insurer has ceased to transact insurance in this state, or the insurer's annual tax for the current year will be less than five thousand dollars ($5,000).

(b) This section shall become operative on deletionJuly 1, 2011.

History.—Added by Stats. 2009, Ch. 157 (AB 1422), in effect September 22, 2009, but operative January 1, 2011. Stats. 2010, Ch. 717 (SB 853), in effect October 19, 2010, substituted "July 1, 2011" for "January 1, 2011" after "operative on" in subdivision (b).

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