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<ns0:Id>20250SB__134998AMD</ns0:Id>
<ns0:VersionNum>98</ns0:VersionNum>
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<ns0:ActionText>INTRODUCED</ns0:ActionText>
<ns0:ActionDate>2026-02-20</ns0:ActionDate>
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<ns0:ActionText>AMENDED_SENATE</ns0:ActionText>
<ns0:ActionDate>2026-04-06</ns0:ActionDate>
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<ns0:SessionYear>2025</ns0:SessionYear>
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<ns0:AuthorText authorType="LEAD_AUTHOR">Introduced by Senator Gonzalez</ns0:AuthorText>
<ns0:AuthorText authorType="COAUTHOR_OPPOSITE">(Coauthor: Assembly Member Mark González)</ns0:AuthorText>
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<ns0:Legislator>
<ns0:Contribution>LEAD_AUTHOR</ns0:Contribution>
<ns0:House>SENATE</ns0:House>
<ns0:Name>Gonzalez</ns0:Name>
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<ns0:Name>Mark González</ns0:Name>
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<ns0:Title> An act to add and repeal Section 43 of the Revenue and Taxation Code, relating to taxation.</ns0:Title>
<ns0:RelatingClause>taxation</ns0:RelatingClause>
<ns0:GeneralSubject>
<ns0:Subject>Taxation: tax expenditures: Legislative Analyst’s Office: report and recommendation.</ns0:Subject>
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<html:p>Existing law, including, but not limited to, property tax law, the Sales and Use Tax Law, the Personal Income Tax Law, the Corporation Tax Law, the Motor Vehicle Fuel Tax Law, the law governing the taxation of insurers, the Use Fuel Tax Law, and the Diesel Fuel Tax Law, provides for tax expenditures, including exemptions, deductions, exclusions, and credits against the taxes imposed by those laws. </html:p>
<html:p>The bill would require the Legislative Analyst’s Office (LAO), by January 1, 2029, to write and publish a report that comprehensively assesses major tax expenditures, as defined, of the state, and make a recommendation to the Legislature based on
the report. In this regard, the bill would require LAO, as part of the comprehensive assessments, to identify any savings that the Legislature can reduce or eliminate from the major tax expenditures, and require them to consider certain criteria when finalizing the report, including the impact on the General Fund.</html:p>
<html:p>The bill would require
the scope of each comprehensive assessment to include certain specified information, to the extent possible, including a brief description of the beneficiaries of each tax expenditure, as
specified.</html:p>
<html:p>The bill would require LAO to submit the report to the Senate Committee on Budget and Fiscal Review, the Senate Committee on Revenue and Taxation, the Assembly Committee on Budget, and the Assembly Committee on Revenue and Taxation,
as specified, and to publish the report on its internet website. The bill would require the Senate Committee on Revenue and Taxation and the Assembly Committee on Revenue and Taxation, after receipt of the report by the Legislature, to hold a joint public hearing on the report by August 15 of the second year of the legislative session.</html:p>
<html:p>The bill would require the recommendation from LAO to the Legislature based on the report to include certain
specified information, including the extent to which each major tax expenditure is a cost-effective use of resources compared to other options to address the same purpose, intent, or goal.</html:p>
<html:p>The bill would make these provisions inoperative 6 months after the hearing described above, and repeal them the following January. The bill would make findings and declarations relating to these provisions.</html:p>
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<ns0:Preamble>The people of the State of California do enact as follows:</ns0:Preamble>
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<ns0:Num>SECTION 1.</ns0:Num>
<ns0:Content>
<html:p>The Legislature finds and declares all of the following:</html:p>
<html:p>
(a)
<html:span class="EnSpace"/>
California’s publicly funded K–14 education system is dependent on state revenues, including personal, corporate, sales, and use taxes.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
The Legislature has consistently advanced tax expenditures, including credits and sales and use tax exemptions to accomplish market and policy goals. While these expenditures have been put in place with the goal of achieving certain policy objectives, they have the effect of reducing revenue to the General Fund which, in turn, reduces Proposition 98 funding by approximately 40 cents
on each dollar.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
Given the fact that Proposition 98 was suspended twice during the last recession, and again in 2023-2024, thousands of teachers lost jobs, and millions of California’s students faced significant reductions in services, the closure of programs, and increases in class size, it is imperative for the Legislature to ensure that California’s dollars are spent efficiently, with transparency and oversight to ensure decisions are intentionally created to provide long-term benefits to California.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
The California State Auditor released an audit in 2015 on six of the largest tax expenditures in California and found a lack of oversight or evaluation has resulted in insufficient evidence to determine if some tax credits and exemptions are fulfilling their purpose to
provide economic benefit to California.
</html:p>
<html:p>
(e)
<html:span class="EnSpace"/>
In 2016, the California State Auditor questioned whether some of California’s revenue going toward some tax expenditures is being well spent or if these funds could be better allocated to fulfill the same policy objectives or if improvements can be made to make them more effective.
</html:p>
<html:p>
(f)
<html:span class="EnSpace"/>
Tax expenditures have been created to provide an economic benefit to California as well as to create incentives to achieve particular goals and outcomes. It is imperative for California to ensure the billions of dollars allocated to these outcomes are being well spent to justify the reductions in critical education and public policy programs.
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<ns0:Num>SEC. 2.</ns0:Num>
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Section 43 is added to the
<ns0:DocName>Revenue and Taxation Code</ns0:DocName>
, to read:
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<ns0:Num>43.</ns0:Num>
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<html:p>
(a)
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By January 1, 2029, the Legislative Analyst’s Office shall write and publish a report that comprehensively assesses major tax expenditures of the state, and make a recommendation to the Legislature based on the report, pursuant to this section.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
(1)
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As part of the comprehensive assessments, the Legislative Analyst’s Office shall identify any savings that the Legislature can reduce or eliminate from the major tax expenditures. The
Legislative Analyst’s Office shall consider the following criteria when finalizing the report:
</html:p>
<html:p>
(A)
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The impact on the General Fund.
</html:p>
<html:p>
(B)
<html:span class="EnSpace"/>
The Legislative Analyst’s Office’s assessment of whether modification to or repeal of each major tax expenditure would provide the most positive impacts on the General Fund with the least negative economic, social, or environmental impacts.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
Any other state agency shall assist the Legislative Analyst’s Office with completing its comprehensive assessments of major tax expenditures to the maximum degree practicable.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
The
scope of each comprehensive assessment shall include, but not be limited to, all of the following, to the extent possible:
</html:p>
<html:p>
(1)
<html:span class="EnSpace"/>
A description of the legislative intent for each tax expenditure, if the act adding or amending the tax expenditure contains legislative findings and declarations of that intent or that legislative intent is otherwise expressed or specified by that act.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
A brief description of the beneficiaries of
each tax expenditure, as provided by state law.
</html:p>
<html:p>
(3)
<html:span class="EnSpace"/>
The number of returns filed or business entities affected, as applicable, for the most recent tax year for which full year data is available.
</html:p>
<html:p>
(4)
<html:span class="EnSpace"/>
A listing of any comparable federal tax benefit, if any.
</html:p>
<html:p>
(5)
<html:span class="EnSpace"/>
A description of any recent prior tax expenditure evaluation or compilation of information completed by any state agency.
</html:p>
<html:p>
(6)
<html:span class="EnSpace"/>
The economic, social, or any other benefits of each tax expenditure
to the State of California.
</html:p>
<html:p>
(7)
<html:span class="EnSpace"/>
The total net General Fund moneys lost due to each tax expenditure, including what impact the shift in resources has on other General Fund programs.
</html:p>
<html:p>
(8)
<html:span class="EnSpace"/>
The total reduction in the amount of General Fund proceeds of taxes for purposes of the calculation required by subdivision (b) of Section 8 of Article XVI of the California Constitution, known as Proposition 98, due to each tax expenditure, including what
impact the shift in resources has on educational programs.
</html:p>
<html:p>
(9)
<html:span class="EnSpace"/>
The potential environmental impacts of each tax expenditure, if any.
</html:p>
<html:p>
(10)
<html:span class="EnSpace"/>
A long-term analysis outlining the true beneficiaries versus intended beneficiaries of
each tax expenditure, and its impact on the business climate and market conditions.
</html:p>
<html:p>
(11)
<html:span class="EnSpace"/>
Jobs in California created by each tax expenditure, including all of the following additional information:
</html:p>
<html:p>
(A)
<html:span class="EnSpace"/>
Whether the jobs created were short- or long-term positions, as well as the average salary and benefits provided for the jobs created.
</html:p>
<html:p>
(B)
<html:span class="EnSpace"/>
The number of jobs lost or reduced in areas impacted by
each tax expenditure, or whether jobs were shifted to other sectors.
</html:p>
<html:p>
(C)
<html:span class="EnSpace"/>
The data in subparagraphs (A) and (B) must include, in the aggregate, demographics on gender, race, ethnicity, and age.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
(1)
<html:span class="EnSpace"/>
The Legislative Analyst’s Office shall submit the report to the Senate Committee on Budget and Fiscal Review, the Senate Committee on Revenue and Taxation, the Assembly Committee on Budget, and the Assembly Committee on Revenue and Taxation, and publish the report on its internet website.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
(A)
<html:span class="EnSpace"/>
The requirement for submitting a report imposed under paragraph (1) is inoperative on January 1, 2033, pursuant to Section 10231.5 of the Government Code.
</html:p>
<html:p>
(B)
<html:span class="EnSpace"/>
The report to the Legislature shall be submitted in compliance with Section 9795 of the Government Code.
</html:p>
<html:p>
(3)
<html:span class="EnSpace"/>
Upon receipt of the report required by paragraph (1), the Senate Committee on
Revenue and Taxation
and the Assembly Committee on Revenue and Taxation shall hold a joint public hearing on the report by August 15 of the second year of the legislative session.
</html:p>
<html:p>
(e)
<html:span class="EnSpace"/>
The recommendation from the Legislative Analyst’s Office to the Legislature based on the report shall include, but not be limited to, all of the following in its basis:
</html:p>
<html:p>
(1)
<html:span class="EnSpace"/>
The extent to which each major tax expenditure is a cost-effective use of resources compared to other options to address the same purpose, intent, or goal.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
An analysis of each major tax expenditure’s effect on the General Fund.
</html:p>
<html:p>
(3)
<html:span class="EnSpace"/>
An analysis of each major tax expenditure’s effect on employment,
wages, and the state’s economy.
</html:p>
<html:p>
(4)
<html:span class="EnSpace"/>
Whether opportunities exist to improve the effectiveness of each major tax expenditure in meeting its purpose, intent, or goal, or if no such opportunities exist, whether the Legislature should enact legislation to repeal each major tax expenditure.
</html:p>
<html:p>
(f)
<html:span class="EnSpace"/>
For purposes of this section, “major tax expenditure” means a tax expenditure as defined in subdivision (b) of Section 13305 of the Government Code, that meets all of the following criteria:
</html:p>
<html:p>
(1)
<html:span class="EnSpace"/>
The amount of foregone revenue resulting from the tax expenditure is equal to or greater than one billion dollars ($1,000,000,000) in total over the previous 10 fiscal years, and does not contain any of the following, as of January 1, 2027:
</html:p>
<html:p>
(A)
<html:span class="EnSpace"/>
A repeal or inoperative date.
</html:p>
<html:p>
(B)
<html:span class="EnSpace"/>
A requirement to report any metrics of efficacy.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
Is not a sales and use tax exemption pursuant to Section 6353, 6359, 6369, or 6369.1.
</html:p>
<html:p>
(3)
<html:span class="EnSpace"/>
Is not allowed only against personal income tax imposed under Part 10 (commencing with Section 17001) of Division 2.
</html:p>
<html:p>
(4)
<html:span class="EnSpace"/>
Is not authorized by Chapter 4 (commencing with Section 23701) of Part 11 of Division 2.
</html:p>
<html:p>
(5)
<html:span class="EnSpace"/>
Is not allowed as a deduction under Section 17201 by conformity to Section 170 of the Internal Revenue Code or Section 24357.
</html:p>
<html:p>
(6)
<html:span class="EnSpace"/>
Is not excluded as income under the following:
</html:p>
<html:p>
(A)
<html:span class="EnSpace"/>
Section 17131 by conformity to Section 101 of the Internal Revenue Code, as modified by Section 17132.5.
</html:p>
<html:p>
(B)
<html:span class="EnSpace"/>
Section 17081 by conformity to Section 72 of the Internal Revenue Code, as modified by Section 17085.
</html:p>
<html:p>
(C)
<html:span class="EnSpace"/>
Section 24302.
</html:p>
<html:p>
(D)
<html:span class="EnSpace"/>
Section 24305.
</html:p>
<html:p>
(g)
<html:span class="EnSpace"/>
This section shall become
inoperative on the date six months after the hearing in paragraph (3) of subdivision
(d), and shall be repealed on the following January 1.
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