Qualified Wages -- (See Regulation 23636-0 for Table of Contents.)
EXAMPLE 1: A, a qualified taxpayer, manufactures aircraft navigational instruments in its plant in Lancaster. A's manufacturing facility employees 20 people that assemble the instrument components. Assume that all of A's employees' activities are allocable to property manufactured in this state by the qualified taxpayer designed for ultimate use in a Joint Strike Fighter. A pays its employees $20 per hour, plus the following amounts as an employer: Social Security $1.54; Unemployment Insurance $.18; Workers' Compensation Insurance $.60; Health and Life Insurance $2.08 and Retirement Benefits $1.68 for total compensation of $26.08 per hour. Pursuant to Treasury Regulation section 263 A-1, the Workers' Compensation Insurance, Health and Life Insurance and Retirement Benefits amounts are classified as indirect labor costs and are not qualified wages. Accordingly, $21.72 of the total wages of $26.08 paid by A constitute direct labor costs and qualified wages for purposes of Revenue and Taxation Code section 23636 and this regulation.
EXAMPLE 2: Assume the same facts as in EXAMPLE 1, except A purchases pressurized sealing equipment for the navigational instruments and installs the equipment in B's manufacturing facility located in Burbank. A then enters into a contract with B to pressure seal all of A's navigational equipment following assembly by A. A pays B a specified hourly rate for sealing the equipment. B is properly classified as an independent contractor. Under these facts, even though the payments are made to operate equipment owned by A, the payments to B are not qualified wages as B is not an employee of A and the payments are not qualified wages eligible for the credit. However, if B is a qualified taxpayer and B meets all of the other requirements of Revenue and Taxation Code section 23636 and this regulation, B would be able to claim the JSF Wage Credit for wages paid to its own employees, if any, in connection with the instrument sealing activity.
Cal. Code Regs. Tit. 18, §§ 23636-4
Note: Authority cited: Section 19503, Revenue and Taxation Code. Reference: Section 23636, Revenue and Taxation Code.