A number of tax law changes are being made as part of the final budget deal negotiated among the governor and legislative leaders in each house. These changes are being incorporated into the budget that will be passed out of each house today and signed into law by the governor. Given the nature of the changes, you may want to have your tax departments review them.

These new tax provisions are summarized below. We have highlighted two provisions in particular. In addition, we attach a synopsis of these changes prepared by the California Taxpayers' Association.

The following is a summary of the bill's provisions by bill section, including citation to the applicable California Revenue & Taxation Code Section:

Section 1 - Use tax presumption - this provision expands the current 90-day presumption to a vehicle, vessel or aircraft brought into California within 12 months from the date of its purchase if that vehicle, vessel, or aircraft is (1) purchased by a California resident, (2) subject to California's registration or property tax laws during the first 12 months of ownership, or (3) used or stored in California more than of the time during the first 12 months of ownership. The presumption may be overcome by documentary evidence to the contrary. This presumption does not apply to aircraft or vessels brought into California for the purpose of repair, retrofit or modification, or which is used in interstate or foreign commerce. This change in law is effective after the measure takes effect. Amends CRTC Section 6248

Sections 3, 4, 5, 11, 12, 13 - NOL suspension and conformity - this provision disallows net operation loss deductions and carryovers during tax years beginning on or after January 1, 2008 and before January 1, 2010 (i.e., the 2008 and 2009 tax years). The carryover period for those NOLs are extended, which would allow taxpayers to have the same number of years to utilize the deduction as they would have had if the change in law had not been enacted. For NOLs incurred in taxable years beginning on or after January 1, 2008, the carryover period is extended to 20 years (from 10 years under current law), which conforms to federal law. Additionally, NOLs attributable to taxable years beginning on or after January 1, 2011 may be carrybacks to each of the preceding two taxable years. However, the NOL carryback shall not be carried back to any taxable year beginning before January 1, 2009. After 1/1/2011, a NOL loss may be carried back for each of the two tax years preceding the tax year of the loss. For NOLs after 1/1/2011 and before 1/1/2012, the amount of carryback shall not exceed 50% of the NOL. For NOLs after 1/1/2012 and before 1/1/2013, the amount of carryback shall not exceed 75% of the NOL. For NOLs after 1/1/2013, the amount of carryback shall not exceed 100% of the NOL. Applicable IRC provisions concerning REITs and corporate equity reduction interest losses apply. This provision does not apply to any taxpayer with income of less than $500,000 for the tax year. Amends CRTC Sections 17276, 17276.9, 17276.10, 24416, 24416.9, 24416.10

Section 7 and 8 - Tax amnesty program - these provisions require the Franchise Tax Board to administer a tax amnesty program during February 1, 2009 through March 27, 2009. Tax amnesty shall apply to tax liabilities for tax years beginning on or after January 1, 2003 and before January 1, 2007. FTB shall waive all unpaid penalties and fees (but not interest) and no criminal action shall be brought against a taxpayer in which tax amnesty is allowed for the nonreporting or underreporting of tax liabilities or the nonpayment of any taxes previously assessed or proposed to be assessed. For amounts in which amnesty should have been requested, a 50% accrued interest penalty is imposed. This program does not apply to any amount attributable to an assessment resulting from (1) an examination where the FTB first contacted the taxpayer in writing and that assessment was not final before March 27, 2009 or (2) a proposed assessment where the FTB contacted the taxpayer in writing in connection with failing to file a return and that assessment was not final before March 27, 2009. Amounts that are "due and payable" are defined in four instances. Tax amnesty does not apply in criminal cases filed or under investigation, nor where the tax liability is attributable to a potentially abusive tax avoidance transaction. The taxpayer must file a completed amnesty application and satisfy certain provisions by June 1, 2009, including filing of original or amended returns, and payment in full of any taxes and interest due for the tax years at issue. The FTB shall develop any necessary forms and instructions for the amnesty program. It also requires the FTB to conduct a public outreach program and to make reasonable efforts to identify taxpayer liabilities and send written notices to taxpayers of their eligibility. Adds CRTC Sections 19137, 19740 - 19747

Sections 2, 9, 10 - Business credits reduced and unitary utilization - these provisions provide that, for each taxable years beginning on or after January 1, 2008 and before January 1, 2010, total "business credits" (as defined) shall not reduce the taxes imposed by the Personal Income and Corporation Tax Laws below 50% of the taxpayer's liability. This provision affects the carryover of any credits under a former provision (such as the manufacturers' investment credit or MIC). "Business credit" is defined as any credit allowed, except household and dependent care, adoption costs, renters', personal exemption, qualified joint custody head of household, senior head of household, and refunds under the Unemployment Insurance Code. The amount of any credit not allowed due to this section shall remain a credit carryover and the carryover period shall be extended by the suspension period. This provision does not apply to any taxpayer with net business income of less than $500,000 for the tax year. Under the Corporation Tax Law, for tax years beginning on or after July 1, 2008 any credit that is an "eligible credit" (as defined) may be assigned to any eligible assignees. "Eligible credit" means any credit earned after July 1, 2008, as well as any credit earned prior to July 1, 2008 that is carried forward. However, a credit assigned may only be applied by the "eligible assignee" (defined as any affiliated corporation that is properly treated as a member of the same combined reporting group) against its tax liability in tax years beginning on or after January 1, 2010. "Affiliated corporation" is a member of a commonly controlled group under CRTC Section 25105. An election to assign a credit is irrevocable once made. A taxpayer assigning any credit shall reduce the amount of its unused credit and the amount shall no longer be included as a carryover. The eligible assignee may not sell or otherwise transfer the assigned credit to any other taxpayer. The FTB is granted authority to develop necessary forms and instructions to implement this section, as well as to issue any regulations necessary to implement this code section. The FTB is required to report to the Legislature by June 30, 2013 the impact of this section, with particular focus on research and development, economic incentive areas, and low-income housing. Adds CRTC Sections 17039.2, 23036.2, 23663

Section 6 - LLC fee acceleration - every limited liability company must annually pay to California a fee equal to specified amounts based upon total income from all sources derived from or attributable to California. The fee is due by the 15th day of the 4th month following the close of the taxable year. This provision requires the fee to be estimated and paid no later than the 15th day of the 6th month of the taxable year and imposes an additional 10% penalty for underpayment. Amends CRTC Section 17942