Cal. RTC § 23628 — California Code / Code rtc / Division 2 / Part 11 / Chapter 3.5 / Section 23628
Section 23628
Status: in_force

(a) (1) For each taxable year beginning on or after January 1, 2021, and before January 1, 2022, there shall be allowed a small business hiring credit against the “tax,” as defined in Section 23036, to a qualified small business employer that receives a tentative credit reservation under Section 6902.10, in an amount calculated pursuant to paragraph (2).

(2) The amount of credit determined by this subdivision shall be equal to the amount calculated pursuant to subparagraph (A) minus the amount calculated pursuant to subparagraph (B).

(A) One thousand dollars ($1,000) for each net increase in qualified employees, as specified in subdivision (c), not to exceed one hundred fifty thousand dollars ($150,000).

(B) If the qualified small business employer received a tentative credit reservation amount pursuant to Section 6902.8, either of the following applies:

(i) For a qualified small business employer that made an irrevocable election pursuant to Section 6902.8 to apply the credit against qualified sales and use taxes pursuant to Section 6902.7, the credit amounts allocated to the qualified small business employer pursuant to Sections 6902.7 and 6902.8.

(ii) For a qualified small business employer that elected to apply the credit under Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001), or both, the tentative credit reservation amount received by the qualified small business employer pursuant to Section 6902.8.

(b) For purposes of this section:

(1) “Monthly full-time equivalent” means either of the following:

(A) In the case of a qualified employee paid hourly qualified wages, “monthly full-time equivalent” means the total number of hours employed per month for the qualified small business employer by the qualified employee, not to exceed 167 hours per month per qualified employee, divided by 167.

(B) In the case of a salaried qualified employee, “monthly full-time equivalent” means the total number of weeks employed per month for the qualified small business employer by the qualified employee divided by 4.33 multiplied by the time base the qualified employee was employed.

(2) (A) “Qualified employee” means an employee who is paid qualified wages by a qualified small business employer.

(B) “Qualified employee” shall not include an employee whose qualified wages are included in calculating any other credit allowed under this part, except for the credit allowed under Section 23627.

(3) (A) “Qualified small business employer” means a taxpayer that as of December 31, 2020, employed a total of 500 or fewer qualified employees and meets either of the following requirements:

(i) Has a decrease of 20 percent or more in gross receipts determined by comparing gross receipts beginning on January 1, 2020, and ending on December 31, 2020, to the gross receipts beginning on January 1, 2019, and ending on December 31, 2019.

(ii) Is a fiscal year filer that has a decrease of 20 percent or more in gross receipts determined by comparing either of the following:

(I) The gross receipts for fiscal year 2019–20 to the gross receipts from fiscal year 2018–19.

(II) The average of gross receipts for fiscal year 2019–20 and fiscal year 2020–21 to the gross receipts from fiscal year 2018–19.

(iii) For a taxpayer that first commences business after January 1, 2019, but on or before January 1, 2020, has a decrease of 20 percent or more in gross receipts in the second quarter of 2020 determined by comparing gross receipts from January 1, 2020, through February 28, 2020, multiplied by 1.5 to the gross receipts for the period beginning on April 1, 2020, and ending on June 30, 2020.

(B) “Qualified small business employer” does not include a taxpayer required to be included in a combined report under Section 25101 or 25110 or authorized to be included in a combined report under Section 25101.15.

(4) “Qualified wages” means wages subject to withholding under Division 6 (commencing with Section 13000) of the Unemployment Insurance Code.

(5) “Time base” means the fraction of full-time employment that the qualified employee is employed.

(6) “Weeks employed” means the total number of calendar days that a qualified employee was employed by the qualified small business employer during the month, divided by seven, not to exceed 4.33.

(c) The net increase in qualified employees of a qualified small business employer shall be equal to the amount calculated pursuant to paragraph (2) minus the amount calculated pursuant to paragraph (1).

(1) The average monthly full-time equivalent qualified employees employed during the three-month period beginning on April 1, 2020, and ending on June 30, 2020, by the qualified small business employer. The average monthly full-time equivalent qualified employees is determined by adding the total monthly full-time equivalent qualified employees employed by the qualified small business employer for all three months and dividing the total by three.

(2) The lesser of either of the following:

(A) The average monthly full-time equivalent qualified employees employed during the 12-month period beginning on July 1, 2020, and ending on June 30, 2021, by the qualified small business employer. The average monthly full-time equivalent qualified employees is determined by adding the total monthly full-time equivalent qualified employees employed by the qualified small business employer for all 12 months and dividing the total by 12.

(B) The average monthly full-time equivalent qualified employees employed during the three-month period beginning on April 1, 2021, and ending on June 30, 2021, by the qualified small business employer. The average monthly full-time equivalent qualified employees is determined by adding the total monthly full-time equivalent qualified employees employed by the qualified small business employer for all three months and dividing the total by three.

(d) If the credit allowed by this section exceeds the “tax,” the excess may be carried over to reduce the “tax” in the following year, and succeeding four years if necessary, until the credit is exhausted.

(e) A deduction otherwise allowed under this part for qualified wages shall be reduced by the amount of the credit allowed under this section.

(f) For purposes of this section:

(1) All employees of the trades or businesses that are treated as related under Section 267, 318, or 707 of the Internal Revenue Code shall be treated as employed by a single qualified small business employer.

(2) If a qualified small business employer changes its business form to a different entity type after receiving a tentative credit reservation under Section 6902.10 and continues operation, the new entity shall be allowed the credit, and the determination of the amount of the credit under this section with respect to qualified wages paid or incurred by the qualified small business employer shall apply to the new entity as if those qualified wages were paid or incurred by the new entity.

(g) Notwithstanding Section 23803, an “S” corporation that makes the election under Section 6902.10 shall be allowed to apply the full credit amount against qualified sales and use tax, and no amount of credit shall be allowed to reduce the shareholder’s liability under Part 10 (commencing with Section 17001).

(h) A disallowance of a credit claimed due to the application of the limitation specified in Section 6902.10 shall be treated as a mathematical error appearing on the return. An amount of tax resulting from that disallowance may be assessed by the Franchise Tax Board in the same manner as provided by Section 19051.

(i) (1) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this section.

(2) The Franchise Tax Board may adopt rules, guidelines, procedures, or other guidance to carry out the purposes of this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any regulation, rule, guideline, procedure, or other guidance adopted by the Franchise Tax Board pursuant to this section.

(j) Notwithstanding Section 19542, the Franchise Tax Board may provide to the California Department of Tax and Fee Administration, only to the extent allowed under federal law, information related to the credit allowed by Section 6902.9, this section, and Section 17053.71, including, but not limited to, the qualified small business employer names, amounts of tax credits allowed under each section, amount of gross receipts, and the net increase in qualified employees.

(k) The amendments made to this section by Chapter 55 of the Statutes of 2022 shall apply for taxable years beginning on or after January 1, 2021, and before January 1, 2022.

(l) This section shall remain in effect only until December 1, 2026, and as of that date is repealed.