California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 3.5 - Bank and Corporation Tax › Subchapter 3 - Corporation Income Tax › Article 3 - Tax Credits › Section 23636-5 - Qualified Employee

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
Qualified Employee -- (See Regulation 23636-0 for Table
						of Contents.)
(a) In General. The
					 Joint Strike Fighter Wage Credit is allowed to any qualified taxpayer for
					 certain qualified wages paid to qualified employees. For purposes of
					 Regulations 23636-1 through 23636-9, inclusive, the term "employee" means any
					 employee, as described in Sections
					 13004,
					 13004.1
					 and
					 13004.5
					 of the Unemployment Insurance Code, whose services for the qualified taxpayer
					 are performed in this state and are at least 90 percent directly related to the
					 qualified taxpayer's contract or subcontract to manufacture property for
					 ultimate use in the Joint Strike Fighter. In order to properly compute the
					 limitation contained in subsection (b), the determination of whether an
					 employee is a qualified employee must be made on a monthly basis.
(b) Limitation. The credit allowed by Revenue
					 and Taxation Code section
					 23636
					 and this regulation shall not exceed ten thousand dollars ($10,000) per year,
					 per qualified employee. For employees that are qualified employees for part of
					 a taxable year, the credit shall not exceed ten thousand dollars ($10,000)
					 multiplied by a fraction, the numerator of which is the number of months of the
					 taxable year that the employee is a qualified employee, and the denominator of
					 which is 12.
(1) Computation. There are two
					 requirements for a qualified employee:
(1)
					 services must be performed in California and
(2) 90% of those services must be directly
					 related to the qualified taxpayer's initial contract or subcontract to
					 manufacture property for ultimate use in the Joint Strike Fighter. Moreover,
					 the dollar limitation contained in Revenue and Taxation Code section
					 23636,
					 subsection (c), and this regulation is based upon
the number of
					 months
during the taxable year that the employee is a qualified
					 taxpayer. Accordingly, the determination of a qualified employee must be made
					 on a monthly basis during the taxable year. For purposes of this regulation, a
					 qualified taxpayer must first determine the amount of wages paid for the
					 employee's services performed while physically located within and without
					 California. Then, with respect to the California wages, at least 90 percent of
					 the services performed for which California wages are paid each month must be
					 directly related to the qualified taxpayer's initial contract or subcontract to
					 manufacture property for ultimate use in the Joint Strike Fighter. If at least
					 90 percent of the California services are directly related, then the employee
					 is a qualified employee for that month. If less than 90 percent of the
					 California services are directly related or if all of the employee's services
					 are performed outside of California, then the employee is not a qualified
					 employee for that month.
EXAMPLE 1: A, a qualified taxpayer, manufactures avionics
						systems in San Diego and Houston, Texas. B, one of A's employees, works from
						January 1, 2002, in Houston before being transferred to San Diego on July 1,
						2002, to manufacture avionics systems for the Joint Strike Fighter. B works in
						San Diego exclusively on the avionics systems through the remainder of the 2002
						taxable year. Under these facts, B is not a qualified employee for the months
						of January through June, inclusive, since all of B's services were performed
						outside of California during those months. Only wages paid for B's services
						performed in California are potentially eligible for the JSF Wage Credit.
						Assume B works a total of 160 hours per month. Under these facts, B's 160 hours
						of service related to the qualified taxpayer's contract or subcontract to
						manufacture property for ultimate use in the Joint Strike Fighter is divided by
						160 total hours of California service each month. As a result, 100% of B's
						California services are related to the qualified taxpayer's contract or
						subcontract to manufacture property for ultimate use in the Joint Strike
						Fighter and B is a qualified employee for six months of the 2002 taxable year.
						To compute the $10,000 maximum dollar credit limitation, $10,000 would be
						multiplied by 
						6/12 (the
						numerator being the number of months B is a qualified employee and the
						denominator being 12) and A would be allowed a maximum JSF Wage Credit of
						$5,000 for B's California services for the 2002 taxable year.
EXAMPLE 2: Assume the same facts as in EXAMPLE 1, except
						that B is transferred to San Diego on December 8, 2002, and begins working on
						the avionics systems. Under these facts, B's California wages would be
						separated from the Texas wages. Assume B works a total of 160 hours per month
						and B worked 144 of these hours in California for the month of December 2002.
						B's 144 total hours of California service (a portion of B's total December
						hours) related to the qualified taxpayer's contract or subcontract to
						manufacture property for ultimate use in the Joint Strike Fighter is divided by
						144 (total hours of California services). As a result, 100% of B's California
						services are related to the qualified taxpayer's contract or subcontract to
						manufacture property for ultimate use in the Joint Strike Fighter and B is a
						qualified employee for one month of the year. To compute the $10,000 maximum
						dollar credit limitation, $10,000 would be multiplied by 
						1/12 (the
						numerator being the number of months B is a qualified employee and the
						denominator being 12) and A would be allowed a maximum JSF Wage Credit of $833
						for B's California services.
EXAMPLE 3: Assume the same facts as in EXAMPLE 1, except
						B instead is promoted to a management position on December 1, 2002, in A's
						general administrative division in San Diego. Services in general
						administrative functions are not services directly related to the qualified
						taxpayer's contract or subcontract to manufacture property for ultimate use in
						the Joint Strike Fighter. Assume B works a total of 160 hours per month. Under
						these facts, B's 160 hours of service related to the qualified taxpayer's
						contract or subcontract to manufacture property designed for ultimate use in
						the Joint Strike Fighter are divided by 160 total hours of California service
						for each month from July through November. As a result, 100% of B's California
						services for the months of July through November are related to the qualified
						taxpayer's contract or subcontract to manufacture property for ultimate use in
						the Joint Strike Fighter and B is a qualified employee for five months of the
						year. B's December hours of service related to the qualified taxpayer's
						contract or subcontract to manufacture property for ultimate use in the Joint
						Strike Fighter (0 hours) is divided by 160 total hours of California service.
						As a result, none of B's December California service is directly related to the
						qualified taxpayer's contract or subcontract to manufacture property for
						ultimate use in the Joint Strike Fighter and B is a qualified employee for only
						five months of the 2002 taxable year (but not for December). To compute the
						$10,000 wage credit limitation, $10,000 would be multiplied by 
						5/12 (the
						numerator being the number of months B is a qualified employee and the
						denominator being 12) and A would be allowed a maximum JSF Wage Credit of
						$4,167 for B's California services for the months of June through
						November.