(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 17053.36, 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 California. 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 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.