AB 872

Combined reporting

Under current law, a taxpayer may elect to include in its combined group, for

income and franchise tax reporting purposes, every corporation in its commonly

controlled group, regardless of whether such corporations are engaged in the same

unitary business of the taxpayer. Under current law, the Department of Revenue

(DOR) may not disallow such an election, or disregard its effect. Under this bill, if

DOR determines that such an election has the effect of tax avoidance, DOR must

disregard the election's tax effect or disallow the election.

Under current law, for each taxable year that a corporation that is a member

of a combined group has net business loss carry-forward from a taxable year

beginning before January 1, 2009, the corporation may, for 20 taxable years, use up

to 5 percent of the net business loss carry-forward to offset the income of all other

members of the combined group. The bill eliminates this provision.

Qualified production activities income credit

Under the federal Internal Revenue Code, a taxpayer may claim a deduction

equal to 9 percent of the taxpayer's qualified production activities income in the

taxable year or 9 percent of the taxpayer's total taxable income, whichever is less.

For federal tax purposes, qualified production activities income is, generally, the

amount of the taxpayer's domestic production gross receipts that exceed the sum of

the cost of goods sold and other expenses, losses, or deductions. Domestic production

gross receipts are, generally, gross receipts derived from property that was

manufactured, produced, grown, or extracted in the United States.

Under current law, an individual taxpayer may claim a state income tax credit

equal to the taxpayer's qualified production activities income derived from

manufacturing property and agricultural property, multiplied by a certain

percentage. A corporation or insurer may claim a state income and franchise tax

credit equal to the lesser of its taxable income apportioned to this state or its qualified

production activities income derived from manufacturing property or agricultural

property located in this state, multiplied by a certain percentage. The percentage of

qualified production activities income that a taxpayer may claim as a credit is 1.875

percent for 2013, 3.75 percent for 2014, 5.526 percent for 2015, and 7.5 percent for

2016 and for each year thereafter.

The bill eliminates the tax credit for qualified production activities income.

Changes to rates and brackets

Under current law, there are four income tax brackets for single individuals,

certain fiduciaries, heads of households, and married persons. The brackets are

indexed for inflation. The rate of taxation under current law for the lowest bracket

for single individuals, certain fiduciaries, heads of households, and married persons

is 4.40 percent of taxable income; the rate for the second bracket is 5.84 percent; the

rate for the third bracket is 6.27 percent; and the rate for the highest bracket is 7.65