§ 17053.36-6. JSF Contract Bidding.

(a) In General. The JSF Wage Credit shall not be allowed unless the credit is reflected within the bid that forms the basis for the qualified taxpayer's contract or subcontract to manufacture property for ultimate use in a Joint Strike Fighter.

(b) Bid. For purposes of this regulation, the term “bid” shall mean a written bid or offer to perform a contract to produce a product that is designed to be physically attached to or installed in a Joint Strike Fighter in response to a request for bids to construct all or a portion of the Joint Strike Fighter. The bid shall be submitted in a competitive process where the contract will be awarded to the lowest possible bidder or as otherwise indicated in the conditions under which the bids will be received and the contract awarded. Where the scope of work, request for proposal or relationship of the contracting parties is such that only a single party will be submitting a proposal or contract to construct all or a portion of the Joint Strike Fighter, the term “bid” shall include the proposal submitted or contract ultimately executed.

(c) JSF Wage Credit Reflected Within the Bid. For purposes of this regulation, the term “reflected within the bid” shall mean:

(1) the bid that forms the basis of the contact or subcontract is reduced by the amount of the JSF Wage Credit allowable, and

(2) the face of the bid, or an attachment to the bid, contains a calculation showing the original bid price, the amount of the JSF Wage Credit allowable and the resulting reduced bid amount.

The JSF Wage Credit allowable shall be a lump sum number reflected on the contract or subcontract and the aggregate credit allowable over the term of the contract or subcontract is not required to be calculated on the basis of the year in which the credit amount is expected to be claimed.

EXAMPLE 1: X, a qualified taxpayer, submits a bid to the prime contractor in the amount of $70 to manufacture retractable landing gear for the Joint Strike Fighter. The bid price without the JSF Wage Credit would have been $100. The bid form contains an attachment that states the JSF Wage Credit allowable for the subcontract is $30 ($100 contract price less JSF Wage Credit in the amount of $30 for a reduced contract price of $70). X is the successful bidder on the retractable landing gear and thereafter is awarded the contract to produce the part for the Joint Strike Fighter. X and the prime contractor execute a contract in the amount of $70. Under these facts, the $30 JSF Wage Credit amount is reflected within the bid that forms the basis for X's subcontract to manufacture property for ultimate use in a Joint Strike Fighter and X may claim the $30 JSF Wage Credit if all of the other requirements of Revenue and Taxation Code section 17053.36 and this regulation are met.

EXAMPLE 2: Assume the same facts as in EXAMPLE 1, except that the bid form reflects a price of $100. In this circumstance, X is not eligible to claim the credit because X has not reduced the amount of the bid by the amount of the JSF Wage Credit allowable.

EXAMPLE 3: Assume the same facts as in EXAMPLE 1, except that the bid form reflects a price of $70, but the bid form does not contain an attachment showing the amount of the JSF Wage Credit allowable. In this circumstance, X is not eligible to claim the credit because even though the bid amount has been reduced by the amount of the credit allowable, the amount of the credit allowable is not included on the face of the bid or in an attachment to the bid.

EXAMPLE 4: Assume the same facts as in EXAMPLE 1, except that the scope of the project changes after the bid is submitted and X and the prime contractor execute a contract in the amount of $125, reflecting an increase of $55 dollars in the original bid amount. In this circumstance, the cost for the expanded scope of the contract was added to the original bid amount. As a result, X would only be allowed to claim a $30 JSF Wage Credit since this amount was reflected within the original bid.

EXAMPLE 5: X, a qualified taxpayer, is the prime contractor awarded the initial contract from the United States government for the Engineering and Manufacturing Development Phase of the Joint Strike Fighter Program. X does not include any reduction for the JSF Wage Credit in its bid for the Engineering and Manufacturing Development Phase accepted by the United States government. Under these facts, X is not able to claim the JSF Wage Credit since the credit amount was not reflected within the bid that formed the basis for the initial contract for the Engineering and Manufacturing Development Phase.

EXAMPLE 6: Assume the same facts as in EXAMPLE 5, except that Y responds to a request from X and submits a bid to subcontract a portion of the scope of the work covered in the Engineering and Manufacturing Development Phase of the Joint Strike Fighter Program. The bid form includes an attachment that shows the JSF Wage Credit allowable for the subcontract is $20 ($100 contract price less JSF Wage Credit in the amount of $20 for a reduced contract price of $80). Y is the successful bidder on that portion of the scope of the work and thereafter is awarded the contract to produce the part for the Joint Strike Fighter. X and Y execute a contract in the amount of $80. Under these facts, the $20 JSF Wage Credit amount is reflected within the bid that forms the basis for Y's subcontract to manufacture property for ultimate use in a Joint Strike Fighter. Even though X, the prime contractor, did not reduce its bid for the prime contract and is not eligible to claim the JSF Wage Credit, Y's bid met the bidding requirements for claiming the credit and Y may claim the $20 JSF Wage Credit if all of the other requirements of Revenue and Taxation Code section 17053.36 and this Regulation are met.

(3) With respect to a contract to construct all or a portion of the Joint Strike Fighter that is executed on a “cost plus” basis, the term “reflected within the bid” shall mean that (1) California income or franchise taxes are treated as an item of cost to be reimbursed under the terms of the contract, (2) the cost plus contract, or an attachment to the contract, contains a calculation showing the amount of the JSF Wage Credit allowable, and (3) the California income or franchise taxes reimbursed under the contract reflect the reduction for the amount of the JSF Wage Credit allowable.

(d) JSF Wage Credit Allowable. For purposes of this regulation, the term “credit allowable” shall mean at the time the bid for the initial contract or subcontract is submitted, the amount of the credit the qualified taxpayer expects to claim as a result of qualified wages paid in connection with the contract or subcontract. The amount of the JSF Wage Credit allowed to any qualified taxpayer shall be computed pursuant to Revenue and Taxation Code section 17053.36 and these regulations, but shall not exceed the lesser of the credit amount reflected within the bid of the qualified taxpayer or the credit allowed for actual amounts paid or incurred by the qualified taxpayer.

EXAMPLE: Y, a qualified taxpayer, submits a bid to the prime contractor to manufacture the cockpit canopy for the Joint Strike Fighter. The bid form contains an attachment that shows the JSF Wage Credit allowable of $30 ($100 contract price less JSF Wage Credit in the amount of $30 for a reduced contract price of $70). X is the successful bidder on the cockpit canopy and thereafter is awarded the contract to produce the part for the Joint Strike Fighter. X and the prime contractor execute a contract in the amount of $70. Thereafter, Y's wage costs to produce the cockpit canopy increase by 20% and Y determines that its increase in wages paid would result in a JSF Wage Credit in the amount of $36. In this circumstance, even though Y's wage costs have increased, Y is only able to claim a JSF Wage credit in the amount of $30 since that is the amount of the JSF Wage Credit allowable that was reflected within Y's bid.

(e) Pass-Through Entities. For purposes of this regulation:

(1) The amount of the JSF Wage Credit allowable reflected on a bid submitted by a partnership or an S corporation shall be the amount of the JSF Wage Credit expected to be passed through the partnership to the partners or the S corporation to the shareholders in accordance with the applicable provisions of Part 10 (commencing with section 17001) and Part 11 (commencing with section 23001) of the Revenue and Taxation Code.

EXAMPLE: Z, a qualified taxpayer, submits a bid to the prime contractor to manufacture a portion of the hydraulic system for the Joint Strike Fighter. Z calculates the total allowable JSF Wage Credit to be $150. Z has a valid S corporation election in effect for California tax purposes. Under Revenue and Taxation Code section 23803, subsection (a)(1)(A), Z's JSF Wage Credit is limited to $50 (one-third of the amount of the credit otherwise allowable). However, the amount of the JSF Wage Credit that is expected to be passed through to Z's shareholders is $150 and Z must reflect the $150 credit amount on the bid submitted to the prime contractor as provided in this regulation.

(f) Copies Provided to Franchise Tax Board. The qualified taxpayer shall provide, upon request of the Franchise Tax Board, a copy of any bid that forms the basis for a contract or subcontract to manufacture a product for ultimate use in a Joint Strike Fighter.