Hydrogen fuel.

Senator Caballero, with coauthors Archuleta, Umberg, and Gipson, advances a temporary state-level sales and use tax exemption for hydrogen fuel and its storage or use in California, to take effect mid-2026 and sunset in mid-2030, with the transaction tax levy treated as immediate notwithstanding the later operative date. The bill frames the change as a levy that does not require a separate appropriation and seeks to achieve “immediate parity in the rate of taxation for zero-emission vehicles” until a future transportation funding mechanism that includes hydrogen is adopted.

The exemption applies to gross receipts from the sale of hydrogen fuel and to the storage, use, or other consumption of hydrogen fuel within the state, as defined by the bill. The definition of hydrogen fuel encompasses fuels sold by a hydrogen fuel station and fuels used in hydrogen fuel cell electric vehicles or hydrogen internal combustion engine vehicles. However, the exemption expressly does not apply to local sales and use taxes or local transactions and use taxes, nor to taxes deposited to the Local Revenue Fund 2011 or to state taxes dedicated to local government funding. Local amendments to the state tax structure would generally carry into local Law, but are carved out for this exemption.

In addition to the exemption, the bill imposes an accountability framework for tax expenditures: the bill requires the Department of Tax and Fee Administration to establish performance indicators—namely, the estimated annual hydrogen fuel sold at retail in the state and the estimated annual gross receipts from hydrogen fuel sales—and to analyze these indicators and report findings to the Legislature starting by October 1, 2027 and annually thereafter, pursuant to the Government Code. The sunset clause provides that the exemption remains in effect until July 1, 2030, when it is repealed, reinforcing the temporary nature of the policy.

Implementation and fiscal context are framed around a narrow, targeted relief within the Sales and Use Tax Law. The exemption would be introduced within the state framework but would not alter local tax bases or funding streams, and it is not tied to an accompanying appropriation. The bill’s structure emphasizes a data-driven oversight regime for evaluating whether the exemption achieves its stated purpose, with a clear timeline for data collection and annual reporting to the Legislature. The operability of the “immediate effect” provision alongside a 2026 start date, along with methodological details for estimating indicators, are potential areas for practical clarification during implementation.