California ~ Multiple Taxes: Low-Income Housing Credit Provisions Modified; New Donated Fruits and Vegetables Credit Added

CCH Tax Day Report

California legislation has been enacted that modifies existing low-income housing credit provisions for corporation franchise and income, personal income, and insurance gross premiums tax purposes, and adds a new corporation franchise and income and personal income tax credit for donations of fresh fruits and vegetables to food banks.

Low-Income Housing Credit

For a project that receives a preliminary reservation of the state low-income housing credit before January 1, 2020 (previously, 2016), the credit may be allocated among partners based upon the partnership agreement, regardless of how the federal credit is allocated to the partners, or whether the allocation under the terms of the partnership agreement has substantial economic effect.

Also, for a project that receives a preliminary reservation beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of the credit allowed to one or more unrelated parties for each taxable year in which the credit is allowed. The credit must be sold for consideration that is not less than 80% of the amount of the credit. Furthermore, the unrelated party purchasing the credit must be a taxpayer allowed the state or federal credit for the taxable year of the purchase or any prior taxable year in connection with a project located in the state. The credit generally may not be resold by the unrelated party to another taxpayer or other party. However, the credit may be resold once by an original purchaser to one or more unrelated parties, subject to all the requirements for the credit. The taxpayer that originally receives the credit that is sold remains solely liable for all obligations and liabilities imposed on the taxpayer with respect to the credit, none of which will apply to any party to whom the credit is sold or subsequently transferred. Parties that purchase a credit are entitled to utilize the purchased credit in the same manner as the taxpayer that originally received the credit. A taxpayer may not sell the credit if the taxpayer was allowed the credit on a tax return. A taxpayer, with the approval of the Executive Director of the California Tax Credit Allocation Committee, may rescind the election to sell all or any portion of the credit if the consideration for the credit falls below 80% of the amount of the credit after the California Tax Credit Allocation Committee reservation.

Donated Fruits and Vegetables Credit

For taxable years beginning on or after January 1, 2017, and before January 1, 2022, a new corporation franchise and income and personal income tax credit is allowed to qualified taxpayers who donate fresh fruits or vegetables to a food bank in California. The credit allowed is equal to 15% of the qualified value of the fresh fruits and vegetables donated. For taxable years beginning before January 1, 2017, current state law provides a similar credit for 10% of the qualified cost of fresh fruits and vegetables donated to a food bank in California. For purposes of the new credit, a “qualified taxpayer” is a person responsible for planting, managing, and harvesting the crop from the land. “Qualified value” must be calculated by using the weighted average wholesale price based on the taxpayer’s total like grade wholesale sales of the donated item within the calendar month of the donation. If no wholesale sales of the donated item have occurred in the calendar month of the taxpayer’s donation, the “qualified value” will be equal to the nearest regional wholesale market price for the calendar month of the donation based upon the same grade products as published by the U.S. Department of Agriculture’s Agricultural Marketing Service or its successor. Any deduction allowed for the cost paid or incurred by the taxpayer for the donated items must be reduced by the amount of the credit allowed.

A donor must provide to the nonprofit organization the qualified value of the donated fresh fruits or fresh vegetables and information regarding where the fruits or vegetables were grown. Upon receipt of the donated fresh fruits or fresh vegetables, the nonprofit organization must provide a certificate to the donor. Upon request, a taxpayer must provide a copy of the certificate to the Franchise Tax Board (FTB).

The credit may be claimed only on a timely-filed original return. Excess credit may be carried over for up to seven years until the credit is exhausted.

The FTB must report to the Legislature on or before December 1, 2019, and each December 1 thereafter regarding the utilization of the credit. The FTB must also include in the report the qualified value of the fresh fruits and fresh vegetables donated, the county in which the products originated, and the month the donations were made. The reporting requirement becomes inoperative on January 1, 2021.

Ch. 32 (S.B. 837), Laws 2016, effective June 27, 2016, and operative as noted

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