BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 2434 HEARING: 6/25/14
AUTHOR: Gomez FISCAL: Yes
VERSION: 5/19/14 TAX LEVY: Yes
CONSULTANT: Bouaziz
INCOME TAXES: EXCLUSION: TURF REMOVAL
Excludes from gross income amounts received as a rebate,
voucher, or other financial incentive issued by a local
water agency for participation in a turf removal water
conservation program.
Background and Existing Law
Federal and state law allows taxpayers to exclude from
gross income any subsidy provided (directly or indirectly)
by a public utility to customers for the purchase or
installation of any energy conservation measure. An
"energy conservation measure" is any installation or
modification primarily designed to reduce consumption of
electricity or natural gas or improve the management of
energy demand in a dwelling unit as defined by federal law.
State law provides that amounts received as a rebate from a
local water or energy agency or supplier for expenses paid
or incurred by a taxpayer for the purchase or installation
of a water conservation water closet, water and energy
efficient clothes washer, or plumbing device necessary to
serve the recycled water uses are treated as a refund or
price adjustment of amounts payable to that agency or
supplier.
State law also provides any amounts received as a rebate,
voucher, or other financial incentive issued by the
California Energy Commission, the Public Utility
Commission, or a local publicly owned electric utility for
any expenses paid or incurred by a taxpayer for the
installation of thermal system, solar system, wind energy
system device, or fuel cell generating system, are excluded
from gross income.
Generally, to be excluded from gross income, a rebate must
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be based on or related to the cost of the property; the
rebate must be received from someone having a reasonable
connection to the sale of the property such as the
manufacturer, distributor, or seller and installer; and the
rebate must not represent payment or compensation for
services.
Proposed Law
Assembly Bill 2434 excludes from gross income, under both
the personal income tax and corporation tax laws, amounts
received as a rebate, voucher, or other financial incentive
issued by a local water agency for participation in a turf
removal water conservation program.
As a tax levy Assembly Bill 2434 goes into effect
immediately, and applies to taxable years beginning on or
after January 1, 2014 and before January 1, 2019,
State Revenue Impact
The Franchise Tax Board (FTB) estimates revenue losses of
$100,000 in fiscal year (FY) 2014-15, $80,000 in FY
2015-16, and $80,000 in FY 2016-17.
Comments
1. Purpose of the bill . According to the author, "Many
local water agencies or suppliers have been offering
payments for water conservation programs. These approaches
have grown in both scope and in methodology from
traditional equipment switch outs to turf removal and more.
Over the years, the legislature 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. Through conversations
with appropriate committee staff and the Franchise Tax
Board, it was determined that the answer as to whether turf
removal water conservation incentives are taxable was
unclear and depended entirely on the interpretation of
federal law, to which California conforms. Unfortunately,
despite repeated requests, the IRS has not issued any
guidance on the subject. AB 2434 will provide much-needed
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clarity and protection for taxpayers from potential
exposure. Assembly Bill 2434 will, under both the Personal
Income Tax Law and Corporation Tax Law, provide an
exclusion from gross income any amount 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. AB 2434 is both
pro-environment and pro-taxpayer and deserves your support
for the measure."
2. Eases Compliance . As stated above, rebates related to
the cost of property are excluded from gross income and
treated as a refund or price adjustment of amounts payable.
Additionally, any subsidy provided by a public utility to
customers for the purchase or installation of any energy
conservation measure is also excluded from gross income.
Taxpayers who remove turf in order to conserve water and
receive a rebate may not be aware that the rebate is
taxable income under current law, given many other rebates
taxpayers are familiar with are not taxable income under
current law. Excluding turf removal rebates from gross
income will ease compliance for taxpayers that participate
in the much needed program.
Assembly Actions
Assembly Revenue & Taxation 9-0
Assembly Appropriations 17-0
Assembly Floor 77-0
Support and Opposition (06/19/14)
Support : California Landscape Contractors Association;
California Pool & Spa Association; California Special
Districts Associations; City of Los Angeles; City of
Pasadena; Coachella Valley Water District; Eastern
Municipal Water District; San Diego County Water Authority;
Sonoma County Water Agency; The Metropolitan Water District
of Southern California.
Opposition : None received.
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