BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 2434 (Gomez) - Income Taxes: Exclusion
Amended: May 19, 2014 Policy Vote: G&F 6-0
Urgency: No Mandate: No
Hearing Date: August 4, 2014
Consultant: Robert Ingenito
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 2434 would exclude 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. The exclusion would be in
effect for taxable years 2014 through 2018.
Fiscal Impact: The Franchise Tax Board (FTB) indicates that the
bill would result in estimated revenue losses (General Fund) of
$100,000 in 2014-15, $80,000 in 2015-16, and $80,000 in 2016-17.
The bill would not significantly impact FTB's administrative
costs.
Background: Current law excludes from gross income any subsidy
provided by a public utility for the purchase or installation of
any "energy conservation measure". An "energy conservation
measure", in turn, is defined as any installation or
modification primarily designed to reduce the consumption of
electricity or natural gas or to improve the management of
energy demand in a dwelling unit, as specified.
Current law also provides that amounts received as a rebate from
a local water or energy agency or supplier for expenses incurred
to purchase or install a water conservation water closet, water
and energy efficient clothes washer, or a specified plumbing
device are treated as a refund or price adjustment of amounts
payable to that agency or supplier.
Current law provides an exclusion for any rebate, voucher, or
other financial incentive issued by the California Energy
Commission, the Public Utility Commission, or a local publicly
owned electric utility, for an expense incurred by a taxpayer to
purchase or install a specified thermal system, solar system,
AB 2434 (Gomez)
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wind energy system, or a fuel cell generating system.
Proposed Law: This bill would exclude from gross income under
both the personal income tax and corporation tax laws any amount
received as a rebate, voucher, or other financial incentive
issued by a local water or energy agency or supplier for
expenses incurred to participate in a water or energy
conservation program.
Related Legislation: AB 1968 (Nation), Chapter 843, Statutes of
2002, provided an exclusion for specified rebates and vouchers
issued for expenses paid or incurred by a taxpayer to purchase
or install a thermal system, solar system, wind energy system,
or a fuel cell generating system.
Staff Comments: Local governments have recently established
rebate programs to encourage reduced water consumption. For
example, the Metropolitan Water District of Southern California
offers a rebate based on each square foot of water-intensive
turf removed. Likewise, the City of Sacramento recently launched
a "cash for grass" program that will provide rebates to
homeowners who replace their lawns with drought-tolerant
landscaping. Increased offering and participation in such
programs will likely increase as the State's current drought
continues.
However, it is unclear whether such rebate payments are legally
included in a recipient's gross income and are, thus, considered
taxable under current law. While existing law specifically
excludes specific rebates from gross income (such as 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. This bill seeks to
provide clarity on the issue.