(a)
A regulated investment company, as defined in Section 851 of the Internal Revenue Code, relating to definition of regulated investment company, or series thereof, is qualified to pay exempt-interest dividends to its shareholders if, at the close of each quarter of its taxable year, at least 50 percent of the value of its total assets consists of obligations which, when held by an individual, the
interest therefrom is exempt from taxation by this state.
(b)
For purposes of this section:
(1)
“Aggregate reported amount” means the aggregate amount of dividends reported by the company under paragraph (4) as exempt-interest dividends for the taxable year (including exempt-interest dividends paid after the close of the taxable year described in Section 855 of the Internal Revenue Code).
(2)
“Excess reported amount” means the excess of the aggregate reported amount over the exempt interest of the company for the taxable year.
(3)
“Exempt interest” means, with respect to any regulated investment company, the excess of the amount of interest received by it during its taxable year on obligations, interest on which, if held by an individual, is exempt from
taxation by this state, over the amounts that, if it were treated as an individual, would be disallowed as deductions under Section 17280 of this part or Section 171(a)(2) of the Internal Revenue Code.
(4)
(A)Except as provided in subparagraph (B), “exempt-interest dividend” means any dividend or part thereof (other than a capital gain dividend) paid by a regulated investment company or series thereof and reported by the company as an exempt-interest dividend in written statements furnished to its shareholders.
(B)
If the aggregate reported amount with respect to the company for any taxable year exceeds the exempt interest of the company for such taxable year, an exempt-interest dividend is the excess of the reported exempt-interest dividend amount over the excess reported amount which is allocable to such reported exempt-interest dividend amount.
(C)
(i)Except as provided in clause (ii), the excess reported amount (if any) which is allocable to the reported exempt-interest dividend amount is that portion of the excess reported amount which bears the same ratio to the excess reported amount as the reported exempt-interest dividend amount bears to the aggregate reported amount.
(ii)
In the case of a taxable year which does not begin and end in the same calendar year, if the post-December reported amount equals or exceeds the excess reported amount for such taxable year, clause (i) shall be applied by substituting “post-December reported amount” for “aggregate reported amount” and no excess reported amount shall be allocated to any dividend paid on or before December 31 of such taxable year.
(5)
“Post-December reported amount” means the
aggregate reported amount determined by taking into account only dividends paid after December 31 of the taxable year.
(6)
“Reported exempt-interest dividend amount” means the amount reported to its shareholders under paragraph (4) as an exempt-interest dividend.
(7)
“Series” means a segregated portfolio of assets, the beneficial interest in which is owned by the holders of a class or series of stock of the regulated investment company that is preferred over all other classes or series with respect to that portfolio of assets.
(8)
“Value” means, with respect to securities (other than those of majority-owned subsidiaries) for which market quotations are readily available, the market value of those securities; and with respect to other securities and assets, fair market value as determined in good faith by the board of
directors or trustees, except that in the case of securities of majority-owned subsidiaries that are investment companies, as defined in the Investment Company Act of 1940, that fair value shall not exceed market value or asset value, whichever is higher.
(c)
An exempt-interest dividend shall be treated by recipients thereof as an item of interest excludable from income.
(d)
In the case of a qualified fund of funds, as defined in Section 852(g)(2) of the Internal Revenue Code, relating to fund of funds, that fund shall be qualified to pay tax-exempt dividends to its shareholders without regard to whether that fund satisfies the requirements of subdivision (a).
(e)
The amendments made to this section by the act adding this subdivision shall apply to taxable years beginning on or after December 23,
2010.