§ 17053.49-2. Definitions.
18 CA ADC § 17053.49-2Barclays Official California Code of Regulations
18 CCR § 17053.49-2
§ 17053.49-2. Definitions.
(See Regulation Section 17053.49-0 for Table of Contents.)
For purposes of Regulations 17053.49-1 through 17053.49-11, inclusive, the following definitions shall apply:
(a) Biopharmaceutical Activities. The term “biopharmaceutical activities” shall mean those activities, including research, development, production, or provision of biotechnology, which use organisms or materials derived from organisms, and their cellular, subcellular or molecular components, in order to provide pharmaceutical products or processes for human or animal therapeutics, diagnostics, medical, pharmaceutical, nutritional, or other health-related purposes. Biopharmaceutical activities use recombinant DNA technology and living organisms to make commercial products, as opposed to pharmaceutical activities which make use of chemical compounds to produce commercial products.
(b) Capitalized Labor. The term “capitalized labor” shall mean all direct costs of labor that can be identified or associated with and are properly allocable to the construction, modification, or installation of specific items of qualified property. For this purpose, labor encompasses full-time and part-time employees, as well as contract employees and independent contractors.
(1) Direct labor costs shall include all elements of compensation, such as basic compensation, overtime pay, vacation pay, holiday pay, sick leave pay (other than payments pursuant to a wage continuation plan under Internal Revenue Code Section 105(d) as it existed prior to its repeal in 1983), shift differential, payroll taxes, and payments to a supplemental unemployment benefit plan, but shall not include any indirect labor costs.
(2) Indirect labor costs are costs that cannot be identified or associated with the construction, modification, or installation of specific items of qualified property. Indirect labor costs include, but are not limited to, training costs, officers' compensation, pension and other related costs, and employee benefit expenses (including payments pursuant to a wage continuation plan under Internal Revenue Code Section 105(d) as it existed prior to its repeal in 1983).
(3) In determining whether direct costs of labor are properly allocable to the construction, modification, or installation of a specific item of qualified property, the qualified taxpayer shall be required to use the same method of allocation that is required to be used by the qualified taxpayer for California income tax purposes under the uniform capitalization allocation rules specified in Treasury Regulation Section 1.263A-1 (as in effect on the date Regulation 17053.49-2 is effective).
(e) Manufacturing. The term “manufacturing” shall mean the process of converting or conditioning property by changing the form, composition, quality, or character of the property for ultimate sale at retail or for use in the manufacturing of a product to be ultimately sold at retail, and includes any improvements to tangible personal property that result in a greater service life or greater functionality than that of the original property. Tangible personal property shall be treated as having a greater service life if such property can be used for a longer period than such property could have been used prior to the conversion or conditioning of such property. Tangible personal property shall be treated as having greater functionality if it has been improved in such a manner that it can be used to perform new or different functions.
(g) Other Biotechnology Activities. The term “other biotechnology activities” shall mean activities consisting of the application of recombinant DNA technology to produce commercial products, as well as activities regarding pharmaceutical delivery systems designed to provide a measure of control over the rate, duration, and site of pharmaceutical delivery.
(h) Packaging. The term “packaging” shall mean to wrap, seal, box, or put together as a unit, but shall include only that portion of any wrapping, sealing, boxing, or putting together as a unit that is necessary to prepare the goods for delivery to and placement in the qualified taxpayer's finished goods inventory, or to prepare the goods so that they are suitable for delivery to and placement in finished goods inventory. Additional wrapping, sealing, boxing, or putting together as a unit, such as any wrapping, sealing, boxing, or putting together as a unit that is necessary to consolidate the finished goods prior to shipping or to protect them during transportation, shall not be treated as packaging.
If qualified property meets the conditions of subsection (i)(2) of this regulation in any taxable year, it shall be considered placed in service in such year, notwithstanding that the period for depreciation with respect to the qualified property begins in a succeeding taxable year. For example, if under the qualified taxpayer's California depreciation practice such qualified property is accounted for in a multiple asset account and depreciation is computed under an averaging convention, or depreciation is computed under the completed contract method, the unit of production method, or the retirement method, then the qualified property is treated as in a condition or state of readiness and availability for a specifically assigned function. Specific examples where qualified property shall be considered in a condition or state of readiness and available for a specifically assigned function include (A) parts that are acquired and set aside during the taxable year for use as replacements for a particular item or items of qualified property in order to avoid operational time loss, (B) operational items of qualified property that are acquired for a specifically assigned function during the taxable year where it is not practicable to use such item of qualified property for its specifically assigned function in the qualified taxpayer's business until the following taxable year, and (c) qualified property acquired for a specifically assigned function that is operational but is still undergoing testing to eliminate any defects. Materials and parts acquired to be used in the construction of an item of qualified property shall not be considered in a condition or state of readiness and availability for a specifically assigned function.
(j) Pollution Control. The term “pollution control” shall mean any activity that results in the abatement, reduction, or control of water, land, or atmospheric pollution or contamination by removing, altering, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat, but only to the extent that such activity meets or exceeds standards established by this state or by any local or regional governmental agency within this state.
(k) Primarily. The term “primarily” shall mean that property is used 50 percent or more of the time in any qualified activity. For purposes of the preceding sentence, the term “time” shall mean the total number of hours that the property is actually in use during the 12-month period immediately following the date the property is placed in service in this state. For example, if an item of property is used by a qualified taxpayer for a total of 100 hours for all uses during the 12-month period immediately following the date the property is placed in service in this state, then “primarily” used in a qualified activity means at least 50 hours of the property's use is in a qualified activity.
(l) Process. The term “process” shall mean the period beginning at the point at which any raw materials are received by the qualified taxpayer and introduced into the manufacturing, processing, refining, fabricating, or recycling activity of the qualified taxpayer and ending at the point at which the manufacturing, processing, refining, fabricating, or recycling activity of the qualified taxpayer has altered tangible personal property to its completed form, including packaging, if required. Raw materials will be considered to have been introduced into the process when the raw materials are stored on the same premises where the qualified taxpayer's manufacturing, processing, refining, fabricating, or recycling activity is conducted. Raw materials that are stored on premises other than where the qualified taxpayer's manufacturing, processing, refining, fabricating, or recycling activity is conducted, shall not be considered to have been introduced into the manufacturing, processing, refining, fabricating, or recycling process.
(n) Qualified Activity. The term “qualified activity” shall mean an activity engaged in by a qualified taxpayer that involves manufacturing, processing, refining, fabricating, recycling, research and development, or pollution control, and shall also include the maintenance, repairing, measuring, or testing of any qualified property.
(o) Recycling. The term “recycling” shall mean the process of modifying, changing, or altering the physical properties of manufacturing, processing, refining, fabricating, secondary or postconsumer waste which results in the reduction, avoidance or elimination of the generation of waste, but shall not include transportation, baling, shredding, grinding, compressing, or any other activity that does not otherwise change the physical properties of any such waste. Recycling includes, but is not limited to, each of the following:
(3) Any “production process change,” which shall mean any change in the process, method or technique which is used to produce a product or a desired result, including the return of materials or their components for reuse within any existing process or operation, for the purpose of reducing, avoiding, or eliminating the generation of hazardous waste.
(p) Refining. The term “refining” shall mean the process of converting a natural resource to an intermediate or finished product, but shall not include any transportation, storage, conveyance or piping of the natural resources prior to commencement of the refining process, or any other activities which are not part of the process of converting the natural resource into the intermediate or finished product.
(q) Research and Development. The term “research and development” shall mean those activities that are described in Internal Revenue Code Section 174 or in any regulations thereunder. Research and development shall include activities intended to discover information that would eliminate uncertainty concerning the development or improvement of a product. For this purpose, uncertainty exists if the information available to the qualified taxpayer does not establish the capability or method for developing or improving the product or the appropriate design of the product.
(t) Small Business. The term “small business” shall mean a qualified taxpayer or partnership that, as of the last day of the taxable year for which the MIC is allowed, satisfies any of the following requirements: (1) has gross receipts of less than fifty million dollars ($50,000,000), (2) has net assets of less than fifty million dollars ($50,000,000), (3) has a total MIC of less than one millions dollars ($1,000,000) or (4) for income years beginning on or after January 1, 1997, is engaged in biopharmaceutical activities or other biotechnology activities that are described in Codes 2833 to 2836, inclusive, of the SIC Manual, published by the United States Office of Management and Budget, 1987 edition, and as further amended, and has not received regulatory approval for any product from the United States Food and Drug Administration. The determination of whether a qualified taxpayer or partnership is a “small business” shall be made on a separate entity basis, and, in the case of any qualified taxpayer or partnership engaged in multiple lines of business or that has multiple establishments, shall be made by aggregating all of the qualified taxpayer's or partnership's business activities.
Note: Authority cited: Section 19503, Revenue and Taxation Code. Reference: Section 17053.49, Revenue and Taxation Code.
1. New section filed 5-1-96; operative 5-31-96 (Register 96, No. 18).
2. Change without regulatory effect repealing subsection (b), relettering subsections, adding new subsection (g), and amending subsections (l) and (t) filed 8-14-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 33).
This database is current through 9/22/23 Register 2023, No. 38.
Cal. Admin. Code tit. 18, § 17053.49-2, 18 CA ADC § 17053.49-2
|End of Document|