California Revenue and Taxation Code § 24411

(a) For purposes of those taxpayers electing to compute income under Section 25110, 100 percent of the qualifying dividends described in subdivision (c) and 75 percent of other qualifying dividends to the extent not otherwise allowed as a deduction or eliminated from income. “Qualifying dividends” means those received by the water’s-edge group from corporations if both of the following conditions are satisfied: (1) The average of the property, payroll, and sales factors within the United States for the corporation is less than 20 percent. (2) More than 50 percent of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by the water’s-edge group. (b) The water’s-edge group consists of corporations whose income and apportionment factors are taken into account pursuant to Section 25110. (c) Dividends derived from a construction project, the location of which is not subject to the taxpayer’s control. For purposes of this subdivision: (1) “Construction project” means any activity which meets the following requirements: (A) Is undertaken for any entity, including a governmental entity, which is not affiliated with the taxpayer. (B) The majority of its cost of performance is attributable to an addition to real property or an alteration of land or any improvement thereto as those terms are utilized for purposes of this code. “Construction project” does not include the operation, rental, leasing, or depletion of real property, land, or any improvement thereto. (2) “Location of which is not subject to the taxpayer’s control” means that the place at which the majority of the construction takes place results from the nature or character of the construction project and not as a result of the terms of the contract or agreement governing the construction project.

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