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SB-1135 Greenhouse Gas Reduction Fund: income taxes: credit.(2023-2024)

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Date Published: 04/25/2024 09:00 PM
SB1135:v97#DOCUMENT

Amended  IN  Senate  April 25, 2024
Amended  IN  Senate  April 10, 2024

CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Senate Bill
No. 1135

Introduced by Senator Limón

February 13, 2024

An act to amend Section 39719 of the Health and Safety Code, and to add and repeal Sections 17052.9 and 23605 of the Revenue and Taxation Code, relating to greenhouse gas reduction, and making an appropriation therefor.


LEGISLATIVE COUNSEL'S DIGEST


SB 1135, as amended, Limón. Greenhouse Gas Reduction Fund: income taxes: credit.
Existing law, the California Global Warming Solutions Act of 2006, designates the State Air Resources Board as the state agency charged with monitoring and regulating sources of emissions of greenhouse gases. The act authorizes the state board to include in its regulation of those emissions the use of market-based compliance mechanisms. Existing law requires all moneys, except for fines and penalties, collected by the state board from the auction or sale of allowances as part of a market-based compliance mechanism to be deposited in the Greenhouse Gas Reduction Fund. Existing law continuously appropriates the annual proceeds of the fund to the various purposes.
This bill, in the 2025–26 fiscal year through the 2035–36 fiscal year, would transfer 1% of the annual proceeds of the Greenhouse Gas Reduction Fund, not to exceed $120,000,000 per fiscal year, to the California Compost Tax Credit Fund, which the bill would establish.
Existing law, the Personal Income Tax Law and the Corporation Tax Law, allow allows various credits against the taxes imposed by those laws.
This bill, for taxable years beginning on or after January 1, 2025, and before January 1, 2036, would allow a credit against those taxes for each taxable year to a qualified taxpayer in an amount equal to amounts paid or incurred during the taxable year for the application of compost on agricultural lands, ranchlands, or rangelands to improve soils, sequester carbon, and reduce greenhouse gas emissions. The bill would require the Department of Food and Agriculture to allocate the credits to qualified taxpayers through an application process, as specified, and would limit the aggregate amount of credits allocated per fiscal year to the amount appropriated from the Greenhouse Gas Reduction Fund to the California Compost Tax Credit Fund, minus specified distributions, as provided.
This bill would require the moneys from the California Compost Tax Credit Fund to be used for the purpose of refunding the General Fund for tax revenue lost due to the credits claimed and would continuously appropriate moneys in the fund to the Department of Food and Agriculture for refunds to qualified taxpayers whose credit exceeds their tax liability, as provided.
This bill would additionally continuously appropriate up to 20% of moneys in the California Compost Tax Credit Fund, not to exceed $24,000,000 per fiscal year, for existing composting infrastructure grant programs and existing healthy soils programs, as specified.
Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve, detailed performance indicators, and data collection requirements.
This bill would include additional information required for any bill authorizing a new tax expenditure.
This bill would also make findings and declarations related to a gift of public funds.
Vote: 2/3   Appropriation: YES   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 39719 of the Health and Safety Code is amended to read:

39719.
 (a) The Legislature shall appropriate the annual proceeds of the fund for the purpose of reducing greenhouse gas emissions in this state in accordance with the requirements of Section 39712.
(b) To carry out a portion of the requirements of subdivision (a), the annual proceeds of the fund are continuously appropriated for the following:
(1) Beginning in the 2015–16 fiscal year, and notwithstanding Section 13340 of the Government Code, 35 percent of the annual proceeds of the fund are continuously appropriated, without regard to fiscal years, for transit, affordable housing, and sustainable communities programs as follows:
(A) Ten percent of the annual proceeds of the fund is hereby continuously appropriated to the Transportation Agency for the Transit and Intercity Rail Capital Program created by Part 2 (commencing with Section 75220) of Division 44 of the Public Resources Code.
(B) Five percent of the annual proceeds of the fund is hereby continuously appropriated to the Low Carbon Transit Operations Program created by Part 3 (commencing with Section 75230) of Division 44 of the Public Resources Code. Moneys shall be allocated by the Controller, according to requirements of the program, and pursuant to the distribution formula in subdivision (b) or (c) of Section 99312 of, and Sections 99313 and 99314 of, the Public Utilities Code.
(C) Twenty percent of the annual proceeds of the fund is hereby continuously appropriated to the Strategic Growth Council for the Affordable Housing and Sustainable Communities Program created by Part 1 (commencing with Section 75200) of Division 44 of the Public Resources Code. Of the amount appropriated in this subparagraph, no less than 10 percent of the annual proceeds of the fund shall be expended for affordable housing, consistent with the provisions of that program.
(2) Beginning in the 2015–16 fiscal year, notwithstanding Section 13340 of the Government Code, and subject to the requirements of Section 39719.3, 25 percent of the annual proceeds of the fund is hereby continuously appropriated to the High-Speed Rail Authority for the following components of the initial operating segment and Phase I Blended System as described in the 2012 business plan adopted pursuant to Section 185033 of the Public Utilities Code:
(A) Acquisition and construction costs of the project.
(B) Environmental review and design costs of the project.
(C) Other capital costs of the project.
(D) Repayment of any loans made to the authority to fund the project.
(3) (A) Beginning in the 2020–21 fiscal year, and until June 30, 2030, 5 percent of the annual proceeds of the fund, up to the sum of one hundred thirty million dollars ($130,000,000), is hereby annually transferred to the Safe and Affordable Drinking Water Fund established pursuant to Section 116766 for the purposes of Chapter 4.6 (commencing with Section 116765) of Part 12 of Division 104.
(B) Moneys transferred under this paragraph shall be used for the purpose of facilitating the achievement of reductions of greenhouse gas emissions in this state in accordance with the requirements of Section 39712 or to improve climate change adaptation and resiliency of disadvantaged communities or low-income households or communities, consistent with Division 25.5 (commencing with Section 38500). For purposes of the moneys transferred under this paragraph, a state agency may also comply with the requirements of paragraphs (2) and (3) of subdivision (a) of Section 16428.9 of the Government Code by describing how each proposed expenditure will improve climate change adaptation and resiliency of disadvantaged communities or low-income households or communities.
(4) Notwithstanding Section 13340 of the Government Code, for each fiscal year, beginning in the 2022–23 fiscal year through the 2028–29 fiscal year, the sum of two hundred million dollars ($200,000,000) is hereby continuously appropriated, to the Department of Forestry and Fire Protection and allocated as follows:
(A) One hundred sixty-five million dollars ($165,000,000) for healthy forest and fire prevention programs and projects that improve forest health and reduce emissions of greenhouse gases caused by uncontrolled wildfires.
(B) Thirty-five million dollars ($35,000,000) for the completion of prescribed fire and other fuel reduction projects through proven forestry practices consistent with the recommendations of the California Forest Carbon Plan, including the operation of year-round prescribed fire crews and implementation of a research and monitoring program for climate adaptation.
(5) In the 2025–26 fiscal year through the 2035–36 fiscal year, 1 percent of the annual proceeds of the fund per fiscal year, not to exceed one hundred twenty million dollars ($120,000,000) per fiscal year, shall be annually transferred to the California Compost Tax Credit Fund, which is hereby established in the State Treasury, for the following purposes:
(A) To refund the General Fund for the tax revenue lost due to credits claimed pursuant to Sections 17052.9 and 23605 of the Revenue and Taxation Code, as estimated annually by the Department of Finance.
(B) Notwithstanding Section 13340 of the Government Code, moneys in the fund are hereby continuously appropriated to the Department of Food and Agriculture in the amount necessary to pay refunds to qualified taxpayers pursuant to Sections 17052.9 and 23605 of the Revenue and Taxation Code.
(C) Notwithstanding Section 13340 of the Government Code, up to 20 percent of moneys in the fund, not to exceed twenty-four million dollars ($24,000,000) per fiscal year ($24,000,000), year, is hereby continuously appropriated for the following purposes:
(i) ____ percent of the funding provided for in this subparagraph to the Department of Resources Recycling and Recovery for the Community Composting for Green Spaces Grant Program of the grant program established pursuant to Section 42999 of the Public Resources Code.
(ii) ____percent of the funding provided for in this subparagraph to the Department of Food and Agriculture for the Healthy Soils Program established pursuant to Section 569 of the Food and Agricultural Code.
(c) In determining the amount of the annual proceeds of the fund for purposes of the calculation in paragraphs (1) to (3), inclusive, of subdivision (b), the funds subject to Section 39719.1 and the sum set forth in paragraph (4) of subdivision (b) shall not be included.

SEC. 2.

 Section 17052.9 is added to the Revenue and Taxation Code, to read:

17052.9.
 (a) For taxable years beginning on or after January 1, 2025, and before January 1, 2036, there shall be allowed a credit against the “net tax,” as defined in Section 17039, to a qualified taxpayer in an amount equal to amounts paid or incurred by the qualified taxpayer for qualified expenditures, subject to allocation by the Department of Food and Agriculture pursuant to subdivision (c).
(b) For purposes of this section:
(1) “Qualified expenditure” means amounts paid or incurred by a qualified taxpayer during the taxable year for the application of compost on agricultural lands, ranchlands, or rangelands to improve soils, sequester carbon, and reduce greenhouse gas emissions. The application of the compost may include additional multibenefit purposes, such as increasing water retention and infiltration, preventing erosion, reducing soil dust, and improving water quality.
(2) (A) “Qualified taxpayer” means a business entity that has paid or incurred qualified expenditures and has been issued a credit allocation by the Department of Food and Agriculture pursuant to subdivision (c).
(B) In the case of any pass-thru entity, the determination of whether a taxpayer is a qualified taxpayer under this section shall be made at the entity level and any credit under this section or Section 23605 shall be allowed to the pass-thru entity and passed through to the partners and shareholders in accordance with applicable provisions of this part or Part 11 (commencing with Section 23001). For purposes of this paragraph, the term “pass-thru entity” means any partnership or “S” corporation.
(c) For purposes of this section, the Department of Food and Agriculture shall do all of the following:
(1) Establish, by regulation, in consultation with the Wildlife Conservation Board, the State Air Resources Board, the Department of Resources Recycling and Recovery, the State Water Resources Control Board, and the Department of Water Resources, guidelines for eligibility for an allocation of the credit authorized by this section. The guidelines shall include both of the following:
(A) Requirements for projects to be an eligible qualified expenditure.
(B) The percentage of credit allocation available for qualified expenditure by project type.
(2) Establish a procedure for applicants to apply, via a written application, for a credit allocation, on a form jointly prescribed by the Department of Food and Agriculture and the Franchise Tax Board.
(3) (A) Establish criteria, consistent with the requirements of this section, for allocating credits.
(B) The department shall consider prioritizing and allocating prioritize and allocate larger credit amounts to taxpayers whose projects obtained local or federal matching funds, are located in economically disadvantaged communities, are multibenefit water conservation projects, or and sequester the most carbon per acre as determined by regulation.
(4) Beginning on or after July 1, 2025, in two or more allocation periods per fiscal year, allocate credits to applicants.
(5) Provide each applicant awarded a credit with a credit allocation letter.
(d) The aggregate amount of credits that may be allocated per fiscal year pursuant to this section and Section 23605 is the amount appropriated that fiscal year from the Greenhouse Gas Reduction Fund to the California Compost Tax Credit Fund, plus unused credit amount or unallocated credit amount, if any, for the preceding taxable year, minus the funding appropriated pursuant to subparagraph (C) of paragraph (5) of subdivision (b) of Section 39719 of the Health and Safety Code.
(e) (1) Any deduction that is otherwise allowed to the qualified taxpayer pursuant to this part with respect to qualified expenditures shall be reduced by the amount of any credit claimed under this section.
(2) This credit shall be taken in lieu of any other credit that the qualified taxpayer may otherwise claim pursuant to this part with respect to qualified expenditures.
(f) (1) If the credit allowed by this section exceeds the “net tax,” the excess may be carried over to reduce the “net tax” in the following year, and succeeding years if necessary, until the credit is exhausted.
(2) (A) In lieu of the option authorized in paragraph (1), if the amount allowable as a credit under this section exceeds the tax liability computed under this part for the taxable year, the qualified taxpayer may make a one-time election for a refund that shall be credited against other amounts due, if any, and the balance, if any, shall be paid by the Controller, upon notice from the Franchise Tax Board, from the California Compost Tax Credit Fund, pursuant to paragraph (5) of subdivision (b) of Section 39719 of the Health and Safety Code, and refunded to the qualified taxpayer.
(B) In the case of a pass-thru entity, the amount refunded shall be the pro rata share or distributive share the credit passed through to the partner or shareholder of the qualified taxpayer. For purposes of this clause, the term “pass-thru entity” means any partnership, “S” corporation, or limited liability company treated as a partnership.
(C) An election made pursuant to this paragraph shall be irrevocable and shall be made on an original, timely filed return required under Part 10.2 (commencing with Section 18401), in a form and manner as prescribed by the Franchise Tax Board, for the taxable year that the credit is claimed.
(g) A qualified taxpayer shall report to the Franchise Tax Board, at the board’s request and in the form and manner specified by the board, any information regarding the credit allowed under this section deemed necessary by the Franchise Tax Board for administration of this section.
(h) For purposes of complying with Section 41, as it relates to the credit allowed pursuant to this section and Section 23605, the Legislature finds and declares as follows:
(1) The specific goals, purposes, and objectives of the credits are as follows:
(A) To help achieve the goal of net-zero greenhouse gas emissions through carbon sequestration in soils on working lands.
(B) To financially assist ranchers and farmers with composting practices that sequester carbon.
(2) Detailed performance indicators for the Legislature to use in determining whether the credits meet the goals, purposes, and objectives established in this subdivision and by the Department of Food and Agriculture through regulation shall include:
(A) The number of ranchers and farmers taking advantage of the credit.
(B) The acreage of the working lands in projects that are awarded the credit.
(C) The annual overall greenhouse gas reduction of the credit, broken down by dollar and by acre.
(D) Any reporting required by the State Air Resources Board or the Department of Food and Agriculture for the quantification of Greenhouse Gas Reduction Fund expenditures.
(3) The data collection requirements for the credit are as follows:
(A) On or before December 1, 2034, the Legislative Analyst, in collaboration with the Department of Food and Agriculture and the State Air Resources Board, shall prepare and submit a report to the Legislature on the effectiveness of the credits. To the extent data is available, the report shall include, but not be limited to, an analysis of the number of ranchers and farmers taking advantage of the credits, the impact of the credits on greenhouse gas emissions of the state on an annual basis, and the acreage of the working lands covered by projects approved for the credits.
(B) To write the report required by this subdivision, the Legislative Analyst may request information from any of the state agencies involved in the design or implementation of the credits.
(C) The report shall be submitted in compliance with Section 9795 of the Government Code and shall not include any personally identifiable information.
(D) Notwithstanding Section 19542 of the Revenue and Taxation Code, the Franchise Tax Board and the Department of Food and Agriculture shall provide any data requested by the Legislative Analyst pursuant to this subdivision to the extent that data is available. Taxpayer information received pursuant to this section by the Legislative Analyst is subject to Section 19542 of the Revenue and Taxation Code.
(i) This section shall remain in effect only until December 1, 2036, and as of that date is repealed.

SEC. 3.

 Section 23605 is added to the Revenue and Taxation Code, to read:

23605.
 (a) For taxable years beginning on or after January 1, 2025, and before January 1, 2036, there shall be allowed a credit against the “tax,” as defined in Section 23036, to a qualified taxpayer in an amount equal to amounts paid or incurred by the qualified taxpayer for qualified expenditures, subject to allocation by the Department of Food and Agriculture pursuant to subdivision (c).
(b) For purposes of this section:
(1) “Qualified expenditure” means amounts paid or incurred by a qualified taxpayer during the taxable year for the application of compost on agricultural lands, ranchlands, or rangelands to improve soils, sequester carbon, and reduce greenhouse gas emissions. The application of the compost may include additional multibenefit purposes, such as increasing water retention and infiltration, preventing erosion, reducing soil dust, and improving water quality.
(2) (A) “Qualified taxpayer” means a business entity that has paid or incurred qualified expenditures and has been issued a credit allocation by the Department of Food and Agriculture pursuant to subdivision (c).
(B) In the case of any pass-thru entity, the determination of whether a taxpayer is a qualified taxpayer under this section shall be made at the entity level and any credit under this section or Section 17052.9 shall be allowed to the pass-thru entity and passed through to the partners and shareholders in accordance with applicable provisions of this part or Part 10 (commencing with Section 17001). For purposes of this paragraph, the term “pass-thru entity” means any partnership or “S” corporation.
(c) For purposes of this section, the Department of Food and Agriculture shall do all of the following:
(1) Establish, by regulation, in consultation with the Wildlife Conservation Board, the State Air Resources Board, the Department of Resources Recycling and Recovery, the State Water Resources Control Board, and the Department of Water Resources, guidelines for eligibility for an allocation of the credit authorized by this section. The guidelines shall include both of the following:
(A) Requirements for projects to be an eligible qualified expenditure.
(B) The percentage of credit allocation available for qualified expenditure by project type.
(2) Establish a procedure for applicants to apply, via a written application, for a credit allocation, on a form jointly prescribed by the Department of Food and Agriculture and the Franchise Tax Board.
(3) (A) Establish criteria, consistent with the requirements of this section, for allocating credits.
(B) The department shall consider prioritizing and allocating prioritize and allocate larger credit amounts to taxpayers whose projects obtained local or federal matching funds, are located in economically disadvantaged communities, are multibenefit water conservation projects, or and sequester the most carbon per acre as determined by regulation.
(4) Beginning on or after July 1, 2025, in two or more allocation periods per fiscal year, allocate credits to applicants.
(5) Provide each applicant awarded a credit with a credit allocation letter.
(d) The aggregate amount of credits that may be allocated per fiscal year pursuant to this section and Section 17052.9 is the amount appropriated that fiscal year from the Greenhouse Gas Reduction Fund to the California Compost Tax Credit Fund, plus unused credit amount or unallocated credit amount, if any, for the preceding taxable year, minus the funding appropriated pursuant to subparagraph (C) of paragraph (5) of subdivision (b) of Section 39719 of the Health and Safety Code.
(e) (1) Any deduction that is otherwise allowed to the qualified taxpayer pursuant to this part with respect to qualified expenditures shall be reduced by the amount of any credit claimed under this section.
(2) This credit shall be taken in lieu of any other credit that the qualified taxpayer may otherwise claim pursuant to this part with respect to qualified expenditures.
(f) (1) If the credit allowed by this section exceeds the “tax,” the excess may be carried over to reduce the “tax” in the following year, and succeeding years if necessary, until the credit is exhausted.
(2) (A) In lieu of the option authorized in paragraph (1), if the amount allowable as a credit under this section exceeds the tax liability computed under this part for the taxable year, the qualified taxpayer may make a one-time election for a refund that shall be credited against other amounts due, if any, and the balance, if any, shall be paid by the Controller, upon notice from the Franchise Tax Board, from the California Compost Tax Credit Fund, pursuant to paragraph (5) of subdivision (b) of Section 39719 of the Health and Safety Code, and refunded to the qualified taxpayer.
(B) In the case of a pass-thru entity, the amount refunded shall be the pro rata share or distributive share the credit passed through to the partner or shareholder of the qualified taxpayer. For purposes of this clause, the term “pass-thru entity” means any partnership, “S” corporation, or limited liability company treated as a partnership.
(C) An election made pursuant to this paragraph shall be irrevocable and shall be made on an original, timely filed return required under Part 10.2 (commencing with Section 18401), in a form and manner as prescribed by the Franchise Tax Board, for the taxable year that the credit is claimed.
(g) A qualified taxpayer shall report to the Franchise Tax Board, at the board’s request and in the form and manner specified by the board, any information regarding the credit allowed under this section deemed necessary by the Franchise Tax Board for administration of this section.
(h) This section shall remain in effect only until December 1, 2036, and as of that date is repealed.

SEC. 4.

 The Legislature hereby finds and declares that the income tax credits allowed by Sections 17052.9 and 23605 of the Revenue and Taxation Code, as added by this act, serve the public purpose of helping achieve the goal of net-zero greenhouse gas emissions through carbon sequestration in soils on working lands and financially assist ranchers and farmers with composting practices that sequester carbon, and do not constitute a gift of public funds within the meaning of Section 6 of Article XVI of the California Constitution.