Personal Income Tax Law and Corporation Tax Law: exclusions: environmental credits.

Senator Padilla's proposal to align California's tax code with federal environmental credit provisions would exclude certain clean energy payments from state gross income calculations starting in 2023. The measure, supported by a bipartisan group of legislative coauthors, creates parallel state tax treatment for federal environmental credit payments established under the 2022 Inflation Reduction Act.

The bill establishes two key exclusions from California gross income: payments received through the federal government's elective payment program for environmental credits, and payments received as consideration for transferring such credits to other entities. While payment recipients would not count these funds as taxable income, the legislation prohibits credit purchasers from deducting transfer payments on their state tax returns.

To evaluate the program's effectiveness in promoting clean energy investment, the bill requires the Franchise Tax Board to analyze credit utilization data and report findings to the Legislature by late 2029. The authors frame these provisions as tools to help achieve California's clean energy targets, including 100% zero-emission electricity sales by 2045. The bill specifies that these tax exclusions serve a public purpose and do not constitute gifts of public funds under the state constitution.