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<ns0:ActionText>INTRODUCED</ns0:ActionText>
<ns0:ActionDate>2026-02-20</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>
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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:Title> An act to add and repeal Sections 42 and 43 of the Revenue and Taxation Code, relating to taxation.</ns0:Title>
<ns0:RelatingClause>taxation</ns0:RelatingClause>
<ns0:GeneralSubject>
<ns0:Subject>Taxation: tax expenditures: California Tax Expenditure Review Board.</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>This bill would establish in state government the California Tax Expenditure Review Board as an independent advisory body to comprehensively assess major tax expenditures, as defined, and make recommendations to the Legislature. The bill would require the board to be composed of 5 members, as specified, who would serve without compensation.</html:p>
<html:p>The bill would require the board, by October 1,
2027, to hold an open and public meeting to consider information provided by the public for the purpose of determining the schedule for comprehensive assessments of major tax expenditures to be conducted by the Legislative Analyst’s Office (LAO), as specified. The bill would require the board, by January 1, 2028, to meet to finalize the schedule for comprehensive assessments of major tax expenditures, and require them to consider certain criteria when finalizing the schedule, including the impact on the General Fund.</html:p>
<html:p>The bill would require the board to set a deadline date as part of determining the schedule for LAO to complete its comprehensive assessments of major tax expenditures, as specified. The bill would require LAO to complete its comprehensive assessments of major tax expenditures and provide them to the board by the deadline date specified in the schedule.</html:p>
<html:p>The bill would require the board to determine the scope of
each comprehensive assessment, which would include certain specified information, including a brief description of the beneficiaries of the tax expenditure, as specified, and would require the board to post a comprehensive assessment on its internet website after receipt. The bill would require the board to make recommendations to the Legislature regarding the major tax expenditures, and to provide a report to the Legislature that compiles all of its recommendations regarding those tax expenditures, after a vote of the members of the board, by January 1, 2029, as specified. The bill would also require the board to submit the report to the Senate Committee on Budget and Fiscal Review, the Senate Committee on Governance and Finance, the Assembly Committee on Budget, and the Assembly Committee on Revenue and Taxation, and post it on its internet website. The bill would require the Senate Committee on Governance and Finance 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 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:VoteRequired>MAJORITY</ns0:VoteRequired>
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<ns0:Election>NO</ns0:Election>
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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 42 is added to the
<ns0:DocName>Revenue and Taxation Code</ns0:DocName>
, to read:
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<ns0:Num>42.</ns0:Num>
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<html:p>
(a)
<html:span class="EnSpace"/>
There is hereby established in state government the California Tax Expenditure Review Board as an independent advisory body to comprehensively assess major tax expenditures and make recommendations to the Legislature.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
The board shall meet and convene meetings as required by this section and Section 43 at locations easily accessible to the public in accordance with the Bagley-Keene Open Meeting Act (Article 9 (commencing with Section 11120) of Chapter 1 of Part 1 of Division 3 of Title 2 of the Government Code).
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
The board shall be composed of five members who shall serve in an advisory capacity, as follows:
</html:p>
<html:p>
(1)
<html:span class="EnSpace"/>
The Controller, or the Controller’s designee.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
The Legislative Analyst, or the Legislative Analyst’s designee.
</html:p>
<html:p>
(3)
<html:span class="EnSpace"/>
The California State Auditor, or the California State Auditor’s designee.
</html:p>
<html:p>
(4)
<html:span class="EnSpace"/>
The Director of Finance, or the Director of Finance’s designee.
</html:p>
<html:p>
(5)
<html:span class="EnSpace"/>
An individual designated by the Secretary of Government Operations who possesses expertise regarding tax administration and the tax expenditures administered by the California Department of Tax and Fee Administration and the Franchise Tax Board.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
The Controller shall serve as chairperson of the board.
</html:p>
<html:p>
(e)
<html:span class="EnSpace"/>
The members of the board shall serve
without compensation, but shall be reimbursed for necessary travel and other expenses incurred in performing their duties and responsibilities.
</html:p>
<html:p>
(f)
<html:span class="EnSpace"/>
The board may establish advisory committees that include members of the public.
</html:p>
<html:p>
(g)
<html:span class="EnSpace"/>
The board and any advisory committee shall keep official records of all of their proceedings.
</html:p>
<html:p>
(h)
<html:span class="EnSpace"/>
For purposes of this section and Section 43, “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>
(i)
<html:span class="EnSpace"/>
This section shall become inoperative on the date six months after the hearing in subdivision (i) of Section 43, and shall be repealed the following January 1.
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<ns0:Num>SEC. 3.</ns0:Num>
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Section 43 is added to the
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, to read:
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<ns0:Num>43.</ns0:Num>
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<html:p>
(a)
<html:span class="EnSpace"/>
By October 1, 2027, the California Tax Expenditure Review Board shall hold an open and public meeting to consider information provided by the public for the purpose of determining the schedule for comprehensive assessments of major tax expenditures to be conducted by the Legislative Analyst’s Office. The board shall begin to determine the schedule after completion of that meeting.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
By January 31, 2028, the board shall meet to finalize the schedule for comprehensive assessments of major tax expenditures. The board shall consider the following criteria when finalizing the schedule:
</html:p>
<html:p>
(1)
<html:span class="EnSpace"/>
The impact on the General Fund.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
The board’s assessment of whether modification to or repeal of the 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>
(3)
<html:span class="EnSpace"/>
The ability for the Legislative Analyst’s Office to complete each comprehensive assessment of the major tax expenditure in a timely fashion.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
The board shall set a deadline date as part of determining the schedule for the Legislative Analyst’s Office to complete its comprehensive assessments of major tax expenditures. The board can vote to adjust the deadline date for reasonable cause.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
The Legislative Analyst’s Office shall complete its comprehensive assessments of major tax expenditures and provide them to the board by the deadline date specified in the schedule. 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>
(e)
<html:span class="EnSpace"/>
The board shall determine scope of each comprehensive assessment, which shall include, but not be limited to, 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 the 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 the 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 the 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 the 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 the 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 the tax expenditure, and its impact on the business climate and market conditions.
</html:p>
<html:p>
(11)
<html:span class="EnSpace"/>
Jobs created by the 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 the 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>
(f)
<html:span class="EnSpace"/>
After receiving a comprehensive assessment from the Legislative Analyst’s Office, the board shall post it on its internet website.
</html:p>
<html:p>
(g)
<html:span class="EnSpace"/>
(1)
<html:span class="EnSpace"/>
After a comprehensive assessment of a major tax expenditure has been posted on the board’s internet website for at least 14 days, and no later than two months from the date the board posts a comprehensive assessment on its internet website, the board shall meet in public for the purposes of voting to make a recommendation to the Legislature regarding the major tax expenditure. The votes of three members are necessary to make a recommendation to the Legislature. Any recommendation shall be subject to
enactment by the Legislature. Nothing in this section shall be construed to preclude the Legislature from taking action independently to amend, sunset, or repeal existing tax expenditures.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
The board shall consider information provided by the public in response to the comprehensive assessment at the meeting before making the recommendation.
</html:p>
<html:p>
(3)
<html:span class="EnSpace"/>
The recommendation from the board to the Legislature shall include, but not be limited to, all of the following:
</html:p>
<html:p>
(A)
<html:span class="EnSpace"/>
The extent to which the 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>
(B)
<html:span class="EnSpace"/>
An analysis of the major tax expenditure’s effect on the General Fund.
</html:p>
<html:p>
(C)
<html:span class="EnSpace"/>
An analysis of the effect on employment, wages, and the state’s economy.
</html:p>
<html:p>
(D)
<html:span class="EnSpace"/>
Whether opportunities exist to improve the effectiveness of the major tax expenditure in meeting its purpose, intent, or goal, or if no such opportunities exist, whether the Legislature should enact legislation to repeal the major tax expenditure.
</html:p>
<html:p>
(h)
<html:span class="EnSpace"/>
By January 1, 2029, the board shall provide a report to the Legislature that compiles all of its recommendations regarding major tax expenditures made, including any recommendation the board failed to make for a major tax expenditure for which the Legislative Analyst’s Office has completed a comprehensive assessment, and the reasons for the failure.
</html:p>
<html:p>
(1)
<html:span class="EnSpace"/>
The board shall also submit the report to the Senate Committee on Budget and Fiscal Review, the Senate Committee on Governance
and Finance, the Assembly Committee on Budget, and the Assembly Committee on Revenue and Taxation, and post it on its internet website.
</html:p>
<html:p>
(2)
<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>
(i)
<html:span class="EnSpace"/>
Upon receipt of the report required by subdivision (h), the Senate Committee on Governance and Finance 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>
(j)
<html:span class="EnSpace"/>
This section shall become inoperative on the date six months after the hearing in subdivision (i), and shall be repealed on the following January 1.
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