§ 17053.49-9. MIC Carryforwards.

(a) In General. In any case where the MIC exceeds the “net tax,” the excess may be carried forward to reduce the net tax in the following year, and succeeding years, as follows:

(1) Except as provided in subsection (a)(2) of this regulation and subsection (c) of this regulation, for the eight taxable years succeeding the taxable year for which the MIC is allowed, if necessary, until the credit is exhausted.

(2) Except as provided in subsection (c) of this regulation, in the case of any small business, for the ten taxable years succeeding the taxable year for which the MIC is allowed, if necessary, until the credit is exhausted.

Except as provided in this regulation, the amount of MIC that may be carried over to the following year, and succeeding years, including carryforwards from any and all prior years, is not limited.

(b) Small Business Determination Made as of the Last Day of the Taxable Year for Which the MIC is Allowed. Except as provided in subsection (c) of this regulation, the determination of which carryforward period shall apply shall be made as of the last day of the qualified taxpayer's taxable year for which the MIC is allowed.

EXAMPLE 1 : Assume that as of the last day of its 1996 taxable year G, a qualified taxpayer, is a “small business” for purposes of the MIC. During G's 1996 taxable year, G purchased a machine that was qualified property for $500, thereby entitling G to a $30 MIC. Assume that the entire $30 MIC exceeds the “net tax,” so that G is required to carry forward the $30 MIC. Under these facts, G is entitled to carry forward the unused $30 MIC to each of its ten (10) succeeding taxable years, if necessary, until the MIC is exhausted, regardless of whether G is a small business in any of its succeeding taxable years.

EXAMPLE 2 : Assume the same facts as in EXAMPLE 1, except that G purchases another machine that is qualified property in its 1997 taxable year for $750, thereby entitling G to a $45 MIC. Assume that in G's 1997 taxable year G is no longer treated as a “small business” for purposes of the MIC. Assume further that the entire $45 MIC for 1997 exceeds the “tax,” so that G is required to carry forward the $45 MIC. Under these facts, G is entitled to carry forward the unused $45 MIC to each of its eight (8) succeeding taxable years, if necessary, until the MIC is exhausted, regardless of whether G is a small business in any of its succeeding years.

(c) Special Rule for MIC Allowed in 1994 or 1995 But Deferred Until Qualified Taxpayer's First Taxable Year Beginning on or after January 1, 1995. In the case of any qualified costs paid or incurred with respect to qualified property that is placed in service in 1994 or 1995 for which the MIC is allowed but deferred under the rules of subsection (b) of Regulation 17053.49-1, the carryforward period specified in subsection (a) of this regulation shall commence with the qualified taxpayer's first taxable year beginning on or after January 1, 1995. However, the determination of whether the qualified taxpayer is a small business shall be made as of the last day of the taxable year in which the MIC is allowed, rather than as of the last day of the taxable year in which the MIC may first be claimed under subsection (b) of Regulation 1753.49-1.

EXAMPLE 1 : Assume that as of the last day of its 1994 taxable year H, a qualified taxpayer filing on a calendar year basis, is a “small business” for purpose of the MIC. During H's 1994 taxable year, H purchased a machine that was qualified property for $800, thereby entitling H to a $48 MIC. Under the rules of subsection (b) of Regulation 17053.49-1, H may not claim the credit until its first taxable year beginning on or after January 1, 1995. Assume that in H's 1995 taxable year the entire $48 MIC exceeds the “net tax,” so that H is required to carry forward the $48 MIC. Under these facts, H is entitled to carry forward the unused $48 MIC to each of its ten (10) taxable years succeeding the taxable year in which the credit could first be claimed (1995), if necessary, until the MIC is exhausted, regardless of whether H is a small business in any of its succeeding taxable years.

EXAMPLE 2 : Assume the same facts as in EXAMPLE 1, except that for its 1995 taxable year H is no longer treated as a “small business” for purposes of the MIC. Under these facts, the result is the same as in EXAMPLE 1 since the determination of whether H is a small business for purposes of the MIC is made as of the last day of the taxable year in which the MIC was allowed (1994), rather than the last day of the taxable year in which the MIC could first be claimed (1995).

EXAMPLE 3 : Assume the same facts as in EXAMPLE 2, except that for its 1994 taxable year H was not a “small business” for purposes of the MIC but was a “small business” for purposes of the MIC for H's 1995 taxable year. Under these facts, H is entitled to carry forward the unused MIC for the eight (8) taxable years succeeding 1995 (the taxable year in which the MIC could first be claimed), even though H was a small business in 1995, since H was not a small business in the taxable year in which the MIC was allowed (1994).

(e) Carryforwards for Pass-Through Entities. In the case of any MIC allowed to a pass-through entity, the determination of the applicable carryover period for any MIC required to be carried forward shall be made at the pass-through entity level.

(f) Carryforwards Permitted After Sunset. In the event that the MIC is repealed under Revenue and Taxation Code Section 17053.49(i), any unused MIC may be carried forward, as provided above, until the unused MIC is exhausted.