(a) In General. For purposes of Regulations 17053.37-1 through 17053.37-11, inclusive, a qualified taxpayer is any taxpayer under an initial contract or initial subcontract to manufacture property for ultimate use in a Joint Strike Fighter. The term “initial contract” shall mean the contract executed by the United States government and a prime contractor for any phase, including the Engineering and Manufacturing Development Phase, of the Joint Strike Fighter Program to produce the Joint Strike Fighter Aircraft. The term “initial subcontract” shall mean a contract between a prime contractor and any other contractor, or between two contractors where one of those contractors is under contract with the prime contractor or where the prime contractor or a contractor under contract with the prime contractor has consented to the contract in writing, to produce a product that is physically attached to or installed in a Joint Strike Fighter Aircraft under the initial contract.

EXAMPLE 1: X is awarded the contract for the Engineering and Manufacturing Development Phase of the Joint Strike Fighter Program and executes a contract with the United States government for completion of that phase. Under these facts, X is a qualified taxpayer because X is a prime contractor awarded the initial contract from the United States government for a phase of the Joint Strike Fighter Program.

EXAMPLE 2: Assume the same facts as EXAMPLE 1, except that X and Y are both awarded a portion of the contract for the Engineering and Manufacturing Development Phase of the Joint Strike Fighter Program and both execute contracts with the United States government for completion of their respective portions of that phase. Under these facts, both X and Y are qualified taxpayers because they are prime contractors awarded initial contracts from the United States government for a phase of the Joint Strike Fighter Program.

EXAMPLE 3: Assume the same facts as EXAMPLE 1, except that Z submits a bid to X, the prime contractor, and is awarded a subcontract to manufacture a product for ultimate use in a Joint Strike Fighter under the scope of the initial contract. Under these facts, Z is a qualified taxpayer because Z is a subcontractor under an initial subcontract for a phase of the Joint Strike Fighter Program.

EXAMPLE 4: Assume the same facts as EXAMPLE 3, except that A submits a bid to Z and is awarded a contract with Z to perform a portion of Z's work under the scope of Z's contract with X. Under these facts, A is also a qualified taxpayer because Z is under contract with one of the prime contractors and A is therefore a subcontractor under an initial subcontract for a phase of the Joint Strike Fighter Program.

EXAMPLE 5: Assume the same facts as EXAMPLE 4, except that A contracts with B to complete a portion of the work under A's contract with Z. Neither X nor Z consent in writing to the contract between A and B. B thereafter completes all of the work in its contract with A. Even though B has assisted in manufacturing a product for ultimate use in a Joint Strike Fighter, B is not a qualified taxpayer because neither X nor Z consented in writing to the contract and B is thus not a subcontractor under an initial subcontract for a phase of the Joint Strike Fighter Program.

(b) Pass-Through Entities. For purposes of Regulations 17053.37-1 through 17053.37-11, inclusive, in the case of any partnership or S corporation, the determination of whether a taxpayer is a qualified taxpayer shall be made at the entity level. Any credit allowed under Revenue and Taxation Code section 17053.37 and this regulation shall be passed through to the partners or shareholders in accordance with applicable provisions of Part 10 (commencing with Revenue and Taxation Code section 17001) or Part 11 (commencing with Revenue and Taxation Code section 23001).