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

Senator Padilla, joined by a broad coalition of coauthors, advances a temporary alignment with federal clean-energy credit mechanics that would exclude certain federal environmental credit payments from California gross income for a five-year window, starting in 2026. The proposal frames this as a conformity-based modification to Personal and Corporate Tax Law, with a built-in sunset and an immediate effect as a tax levy.

The core change creates two new temporary provisions in California’s Revenue and Taxation Code. For eligible taxable years from 2026 through 2030, California would exclude from gross income any refunds or similar payments issued under the federal framework for elective payments of clean-energy credits as well as any payments arising from the transfer of those credits, including the value received by a transferee. A corresponding prohibition would prevent a deduction for any amount paid as consideration in transfers of credits. The bill mirrors federal conformity language to apply these rules and requires alignment with existing “conformity” findings, performance indicators, and a data-reporting obligation for the Franchise Tax Board to the Legislature by late 2029.

The measure ties these exclusions to a conformity framework and to a defined data-reporting plan. It specifies that the exclusion applies only during the 2026–2030 window and that the related transfers carry a non-deduction rule for consideration paid. It also directs the Franchise Tax Board to compile and share taxpayer data related to credits utilized under the federal framework by a statutory deadline, supporting evaluation of conformity outcomes. Both new provisions are described as temporary and repealed automatically at the end of 2031, with the act characterized as a tax levy that takes immediate effect.

From a fiscal and regulatory perspective, the bill interacts with California’s standard gross-income definitions by removing certain federal-credit payments from taxable income during the specified years, while maintaining the transfer-deduction prohibition. It does not include an explicit revenue estimate or appropriation within the text, and it contemplates administrative accommodations such as guidance and forms to reflect the exclusion. Stakeholders affected include individuals and businesses participating in elective payments or credit transfers for clean-energy credits, with the expectation of altered taxable liabilities during 2026–2030 and a defined data-collection framework to inform future policy decisions once the sunset arrives.