BILL ANALYSIS �
AB 2434
Page 1
ASSEMBLY THIRD READING
AB 2434 (Gomez)
As Amended May 19, 2014
Majority vote. Tax levy
REVENUE & TAXATION 9-0 APPROPRIATIONS 17-0
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|Ayes:|Bocanegra, Harkey, Beth |Ayes:|Gatto, Bigelow, |
| |Gaines, Gordon, Mullin, | |Bocanegra, Bradford, Ian |
| |Nestande, Pan, Williams, | |Calderon, Campos, |
| |Ting | |Donnelly, Eggman, Gomez, |
| | | |Holden, Jones, Linder, |
| | | |Pan, Quirk, |
| | | |Ridley-Thomas, Wagner, |
| | | |Weber |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Provides, for taxable years beginning on or after January
1, 2014, and before January 1, 2019, a gross income exclusion for
amounts received as a rebate, voucher, or other financial incentive
issued by a local water agency or supplier for participation in a
turf removal water conservation program. Specifically, this bill :
1)Provides an exclusion under both the Personal Income Tax (PIT) Law
and the Corporation Tax (CT) Law.
2)Sunsets automatically on December 1, 2019.
3)Takes immediate effect as a tax levy.
EXISTING FEDERAL LAW :
1)Defines "gross income" as, except as otherwise provided, all
income from whatever source derived.
2)Excludes from gross income the value of any subsidy provided
(directly or indirectly) by a public utility to a customer for the
purchase or installation of any energy conservation measure, as
defined.
EXISTING STATE LAW :
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1)Provides that Internal Revenue Code Section 61, relating to the
definition of gross income, shall apply, except as specified.
2)Provides an exclusion, under the PIT Law, for any amount received
as a rebate or voucher from a local water or energy agency or
supplier for any expenses the taxpayer paid or incurred to
purchase or install a:
a) Water conservation water closet that meets specified
performance standards;
b) Water and energy efficient clothes washer that meets
specified criteria; and,
c) Plumbing device necessary to serve certain recycled water
uses.
3)Provides an exclusion, under both the PIT Law and the CT Law, for
any rebate, voucher, or other financial incentive issued by the
California Energy Commission, the Public Utilities Commission, or
a local publicly owned electric utility, for an expense incurred
by a taxpayer to purchase or install a:
a) Thermal system as defined in Public Resources Code (PRC)
Section 25600;
b) Solar system as defined in PRC Section 25600;
c) Wind energy system device that produces electricity; or,
d) Fuel cell generating system that produces electricity.
FISCAL EFFECT : According to the Assembly Appropriations Committee:
1)Insignificant costs to the Franchise Tax Board to implement the
exclusion.
2)Significant General Fund revenue decreases, in the hundreds of
thousands of dollars annually, over the duration of the program.
COMMENTS : The author has provided the following statement in
support of this bill:
Many local governments, power and water agencies have been
AB 2434
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offering payments for conservation programs and equipment.
These approaches have grown in both scope and in
methodology from traditional equipment switch outs to turf
removal and more.
Over the years, the [L]egislature has recognized the
importance of these incentive programs and has protected
many conservation financial incentives from taxation - but
it appears not all may be protected.
Assembly Revenue and Taxation Committee staff comments:
What are We Covering? In recent years, a number of local
governments and agencies have established rebate programs to
encourage conservation. For example, in an effort to reduce water
consumption, the Metropolitan Water District of Southern California
offers a rebate based on each square foot of water-intensive turf
removed. The City of Sacramento, in turn, recently launched a "cash
for grass" program that will provide rebates to homeowners who
replace their lawns with drought-tolerant landscaping. The
popularity of such programs is only expected to increase as
California continues to grapple with one of the worst droughts in
its recorded history.
As is often the case, however, where good intentions and tax law
collide, ambiguity is the inevitable result. Specifically,
questions have arisen regarding whether such rebate payments are
legally included in a recipient's gross income and are, thus,
considered taxable. While existing law excludes specific rebates
from gross income (e.g, those provided for installing a specified
thermal or solar system), it does not appear to include many other
rebate programs, including the turf-removal rebate programs noted
above. Thus, the author has introduced this bill to provide a
greater degree of clarity and consistency.
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916) 319-2098
FN: 0003650