Existing state sales and use tax laws impose a tax on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state of, or on the storage, use, or other consumption in this state of, tangible personal property purchased from a retailer for storage, use, or other consumption in this state. The Sales and Use Tax Law provides various exemptions from those taxes, including a partial exemption for the sale of, or the storage, use, or consumption of, certain tangible personal property purchased for use by a qualified person to be used primarily in specified manufacturing, processing, refining, fabricating, recycling, research and development, or electric power, as prescribed. Existing law prohibits an exemption under that provision unless the purchaser furnishes the retailer with an exemption certificate, completed in accordance with any instructions or regulations as the department may prescribe, and the retailer retains the exemption certificate in its records and furnishes it to the department upon request. qualified tangible personal property purchased for use by a qualified person to be used primarily in any stage of the manufacturing, processing, refining, fabricating, or recycling of tangible personal property, beginning at the point any raw materials are received by the qualified person and introduced into the process and ending at the point at which the manufacturing, processing, refining, fabricating, or recycling has altered tangible personal property to its completed form, including packaging, if required.

Existing law (backfill requirement) requires an amount that equals the estimated revenue loss to the General Fund from the allowance of the above-described exemptions, with the concurrence of the Department of Finance, to be transferred from the Greenhouse Gas Reduction Fund to the General Fund, as prescribed.

This bill would additionally exempt, under the provision described above, from state sales and use tax laws qualified tangible personal property purchased for use by a qualified person to be used exclusively in the processing, altering, or other preparation required for converting or conditioning hydrogen or electricity for the fueling of a zero-emission vehicle, as specified. The bill would also exempt, under the provision described above, from state sales and use tax laws qualified tangible personal property purchased by a contractor for use in the performance of a construction contract for a qualified person who will use that property as an integral part of an activity listed above, as specified. would, beginning July 1, 2027, define processing to include the altering, converting, conditioning, or other preparation of hydrogen or electricity for the purposes of selling the hydrogen for fueling or the electricity for charging a vehicle and would define qualified tangible personal property to include hydrogen fueling station equipment and charging station equipment and component parts used as an integral part of those activities. By expanding the scope of the crime of perjury, this bill would impose a state-mandated local program.

This bill would provide that the backfill requirement does not apply to those additional exemptions. with respect to the exemptions allowed by the bill, 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.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

This bill would take effect immediately as a tax levy.

Existing state sales and use tax laws impose a tax on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state of, or on the storage, use, or other consumption in this state of, tangible personal property purchased from a retailer for storage, use, or other consumption in this state. The Sales and Use Tax Law provides various exemptions from those taxes, including a partial exemption for the sale of, or the storage, use, or consumption of, certain tangible personal property purchased for use by a qualified person to be used primarily in specified manufacturing, processing, refining, fabricating, recycling, research and development, or electric power, as prescribed. Existing law prohibits an exemption under that provision unless the purchaser furnishes the retailer with an exemption certificate, completed in accordance with any instructions or regulations as the department may prescribe, and the retailer retains the exemption certificate in its records and furnishes it to the department upon request.

This bill would additionally exempt, under the provision described above, from state sales and use tax laws qualified tangible personal property purchased for use by a qualified person to be used exclusively in the processing, altering, or other preparation required for converting or conditioning hydrogen or electricity for the fueling of a zero-emission vehicle. vehicle, as specified. The bill would also exempt, under the provision described above, from state sales and use tax laws qualified tangible personal property purchased by a contractor for use in the performance of a construction contract for a qualified person who will use that property as an integral part of an activity listed above. above, as specified. By expanding the scope of the crime of perjury, this bill would impose a state-mandated local program.

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.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

This bill would take effect immediately as a tax levy.

Existing state sales and use tax laws impose a tax on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state of, or on the storage, use, or other consumption in this state of, tangible personal property purchased from a retailer for storage, use, or other consumption in this state. The Sales and Use Tax Law provides various exemptions from those taxes, including an a partial exemption for the sale of, or the storage, use, or consumption of, certain tangible personal property purchased for use by a qualified person to be used primarily in specified manufacturing, processing, refining, fabricating, recycling, research and development, or electric power, as prescribed. Existing law prohibits an exemption under that provision unless the purchaser furnishes the retailer with an exemption certificate, completed in accordance with any instructions or regulations as the department may prescribe, and the retailer retains the exemption certificate in its records and furnishes it to the department upon request.

This bill would additionally exempt, under the provision described above, from state sales and use tax laws qualified tangible personal property purchased for use by a qualified person to be used primarily in the fueling of an electric vehicle. exclusively in the processing, altering, or other preparation required for converting or conditioning hydrogen or electricity for the fueling of a zero-emission vehicle. The bill would also exempt, under the provision described above, from state sales and use tax laws qualified tangible personal property purchased by a contractor for use in the performance of a construction contract for a qualified person who will use that property as an integral part of an activity listed above. By expanding the scope of the crime of perjury, this bill would impose a state-mandated local program.

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 take effect immediately as a tax levy.

Existing law authorizes the State Energy Resources Conservation and Development Commission (Energy Commission), in consultation with the State Air Resources Board and the Public Utilities Commission, to require any weight class of battery electric vehicle to be bidirectional capable, as defined, if it determines there is a sufficiently compelling beneficial bidirectional-capable use case to the battery electric vehicle operator and electrical grid. Existing law defines various terms for this purpose, including electric vehicle service equipment. Existing law authorizes the Energy Commission to periodically update the definitions of those defined terms to ensure that the definitions align with current technologies in bidirectional charging and account for ongoing innovation.

This bill would require the Energy Commission to establish the Electric Vehicle Service Equipment Standards Advisory Board to develop, and recommend to the Energy Commission, state standards for electric vehicle service equipment to ensure safety and reliability throughout the state.

Date of Hearing: June 29, 2026

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Mike Gipson, Chair

SBPCA Bill Id:SB 1424

Author:(Archuleta) – As Amended Ver:June 17, 2026

Majority vote. Tax levy. Fiscal committee.

SENATE VOTE: 33-0

SUBJECT: Sales and use taxes: zero-emission vehicle fueling or charging

SUMMARY: Expands the partial sales and use tax (SUT) exemption for manufacturing and research and development (MR&D) to include the "processing" of hydrogen or electricity that is sold by a "qualified person" for the purposes of fueling or charging, respectively, a vehicle. Specifically, this bill:

1. Expands, on and after July 1, 2027, and before July 1, 2030, the partial SUT exemption for MR&D to include "qualified tangible personal property (TPP)" used in the "processing" of hydrogen or electricity sold by a "qualified person" for the purposes of fueling or charging a vehicle.
2. Expands, beginning July 1, 2027, the definition of "processing" to include the altering, converting, conditioning, or other preparation of hydrogen or electricity for the purposes of selling the hydrogen for fueling, or the electricity for charging, a vehicle.
3. Expands the definition of a "qualified person," on and after July 1, 2027, and before July 1, 2030, to include a person that is primarily engaged in those lines of business described in Codes 457110 and 457120 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget (OMB), 2022 edition.
4. Expands the definition of "qualified TPP" to include:
   1. Hydrogen fueling station equipment and component parts used as an integral part of processing hydrogen, as proposed by this bill, including, but not limited to, onsite storage tanks, cryogenic pumps, vaporizers, compressors, chillers, piping, valves, dispensers, meters, controls, safety systems, and associated operating structures; and,
   2. Charging station equipment and component parts used as an integral part of processing electricity, as proposed by this bill, including, but not limited to, chargers or dispensers, power cabinets, underground conduits, transformers, switchgear or switchboards, energy storage systems, meters, cables and connectors, safety systems, and associated operating structures
5. Excludes from the definition of "qualified TPP" TPP used by a "qualified person," as that term is expanded by this bill, as an integral part of the manufacturing of hydrogen fuel derived from natural gas and fossil fuel feedstocks.
6. Provides that this bill's expansion is not backfilled by transfers from the Greenhouse Gas Reduction Fund to the General Fund.
7. Finds and declares, for the purposes of complying with Revenue and Taxation Code (R&TC) Section 41, that this bill's specific goals are to:
   1. Encourage investments in the fueling infrastructure necessary to support zero-emission vehicles (ZEVs);
   2. Support the hydrogen fueling and charging station targets called for in Executive Orders B-48-18, N-27-25, and N-79-20; and,
   3. Reduce the sales tax burden on the purchase of component parts necessary for processing hydrogen and electricity into their completed form for use by a ZEV.
8. Provides that the Legislature may use the following performance indicators to determine whether this bill meets its stated goals:
   1. The number of hydrogen fueling and charging stations built in the state;
   2. The number of commercially available ZEVs and the number sold in the state on an annual basis; and,
   3. The total amount of SUT exempted for "qualified TPP" purchased for use by a "qualified person" to be used primarily in the fueling of a ZEV.
9. Requires the State Air Resource Board (CARB) to review, beginning January 1, 2028, the effectiveness of this bill's tax exemption by providing updates on this bill's stipulated performance metrics in CARB's annual Hydrogen Assessment for the purpose of enabling the Legislature to determine whether this bill's exemption meets its stated goals. The CARB must post the updates required by this bill on its internet website on or before December 31, annually.
10. Requires the California Energy Commission (CEC) to review, beginning January 1, 2028, the effectiveness of this bill's tax exemption by providing updates on this bill's stipulated performance metrics in the CEC's annual Electric Vehicle Charging Assessment for the purposes of enabling the Legislature to determine whether this bill's exemption accomplishes its stated goals. The CEC must post the updates required by this bill on its internet website on or before December 31, annually.
11. Prohibits reimbursement of a local agency or school district because the only costs arising from this bill result from the creation of a new crime or infraction, elimination of a crime or infraction, a change in the penalty for a crime or infraction, or a change in the definition of a crime.
12. Takes immediate effect as a tax levy.

EXISTING LAW:

1. Imposes, under the SUT Law, a tax on retailers measured by the gross receipts from the "retail sale" of TPP in this state or on the storage, use, or other consumption in this state of TPP purchased from a retailer for storage, use, or other consumption in this state. (R&TC Sections 6051 and 6202.)
2. Defines a "retail sale" as a sale for a purpose other than resale in the regular course of business in the form of TPP. (R&TC 6007.) It is presumed that all gross receipts are subject to the SUT, unless otherwise established. The burden of proving that a sale of TPP is not a sale at retail falls upon the person making the sale, unless the purchaser supplies a certificate confirming that the property is purchased for retail. (R&TC Section 6091.)
3. Authorizes, until July 1, 2030, a partial SUT exemption for MR&D on purchases by a "qualified person" of "qualified TPP" to be used primarily:
   
   1. In any stage of the manufacturing, "processing," refining, fabricating, or recycling of TPP;
      
   2. In research and development;
      
   3. To maintain, repair, measure, or test any qualified TPP described above; or,
      
   4. In the generation or production, or storage and distribution, of electric power.

A "qualified person" is, on and after January 1, 2018, and before July 1, 2030, a person that is primarily engaged in those lines of business described in Codes 3111 through 3399, 221111 through 221118, 221122, 541711, or 541712 of the NAICS published by the OMB, 2012 edition.

The term "qualified TPP" includes, but is not limited to:

1. Machinery and equipment, including component parts and contrivances such as belts, shafts, moving parts, and operating structures;
2. Equipment or devices used or required to operate, control, regulate, or maintain the machinery, including, but not limited, to certain specified equipment;
3. TPP used in pollution control that meets standards established by this state or any local or regional governmental agency within the state; and,
4. Special purpose buildings and foundations used, on or after January 1, 2018, and before July 1, 2030, as an integral part of the manufacturing, processing, refining, fabricating, or recycling process, or that constitutes a research or storage facility used during those processes, or the generation, production, or storage and distribution of electric power. Buildings used solely for warehousing purposes after completion of these processes are not included in this definition.

The partial exemption also applies to qualified TPP purchased for use by a contractor to perform a construction contract for a qualified person that will use that property as an integral part of the following:

• 1. The manufacturing, processing, refining, fabricating, or recycling process;
     
  2. The generation or production, or storage and distribution, of electric power; or,
     

1. As a research or storage facility for use in connection with those processes.

"Processing" is defined as the physical application of the materials and labor necessary to modify or change the characteristics of TPP. This exemption is commonly referred to as the partial SUT exemption for MR&D. (R&TC Section 6377.1.)

FISCAL EFFECT: The California Department of Tax and Fee Administration (CDTFA) estimates that this bill would result in a revenue loss of $1.69 million in the 2027-28 fiscal year (FY) and $1.35 million in FY 2028-29.

COMMENTS:

1. The author has submitted the following statement in support of this bill:

Senate Bill 1424 builds on California's commitment to clean energy by extending the state's existing partial [SUT] exemption to [ZEV] fueling infrastructure. With transportation responsible for roughly half of California's greenhouse gas emissions, accelerating the deployment of charging and hydrogen fueling stations is essential to meeting our climate and air quality goals. SB 1424 leverages an already successful, CDTFA-administered program to lower upfront costs for critical infrastructure, ensuring that private investment can scale more quickly and efficiently.

At a time when federal commitment to clean transportation programs has diminished, California must act decisively to maintain momentum and protect its climate leadership. This bill provides a practical, near-term solution to help offset those losses and keep infrastructure deployment on track. By supporting both electric and hydrogen fueling technologies, SB 1424 takes a forward-looking, technology-neutral approach that maximizes innovation and market flexibility. Ultimately, SB 1424 strengthens California's clean transportation future while reinforcing our commitment to economic competitiveness and environmental stewardship.

1. A coalition of hydrogen, electric vehicle, and environmental advocates, automakers, and transit agencies, writing in support of this bill, state, in part:

California's transportation sector accounts for about 50% of the state's greenhouse gas emissions, nearly 80% of nitrogen oxide pollution, and 90% of diesel particulate matter pollution. Transitioning the transportation sector to zero and near-zero emission technologies is critical to achieving our climate change goals and clean air standards.

Consequently, California has adopted ambitious [ZEV] deployment goals through legislation and executive order. Success largely depends on the availability of fueling infrastructure which SB 1424 is designed to support. By taking advantage of existing advanced manufacturing tax credits to draw down infrastructure equipment costs, this bill will help offset the devastating loss of federal support for clean transportation. The Trump Administration's hostile actions toward initiatives like the National Electric Vehicle Infrastructure program and California's Hydrogen Hub have irrevocably harmed California's progress in meeting its transportation decarbonization goals.

1. The California Teachers Association (CTA), writing in opposition to this bill, states, in part:

In fiscal year 2025-26, the Department of Finance estimated a $94 billion dollar loss in general fund revenue due to existing tax expenditures. This is revenue that would have otherwise gone to the General Fund, of which approximately 40% would have gone toward the Proposition 98 minimum guarantee. Once tax credits are passed with a simple majority, it takes a two-thirds vote of the Legislature to repeal them.

While we understand that this is well intended, CTA does not support this approach, as it would reduce overall funding for education. CTA believes Proposition 98 should be protected from reductions through the creation of new or expanding existing tax expenditures.

1. Committee Staff Comments:
   1. What is a "tax expenditure"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, U.S. Treasury officials began arguing that these features of the tax law should be referred to as "expenditures" since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each (in the form of foregone revenues).

As the Department of Finance notes in its annual Tax Expenditure Report, there are several key differences between tax expenditures and direct expenditures. First, tax expenditures are typically reviewed less frequently than direct expenditures. Second, there is generally no control over the amount of revenue losses associated with any given tax expenditure. Finally, it should also be noted that, once enacted, it takes a two-thirds vote to rescind an existing tax expenditure absent a sunset date. This effectively results in a "one-way ratchet" whereby tax expenditures can be conferred by majority vote, but cannot be rescinded, irrespective of their efficacy or cost, without a supermajority vote. This bill would expand an existing SUT exemption, thereby constituting a tax expenditure.

• 1. Hydrogen production: The predominant form of hydrogen production is natural gas reformation. According to the U.S. Department of Energy, 95% of the hydrogen produced in the U.S. is made by natural gas reforming in large plants. There are two main chemical processes that create hydrogen: steam-methane reforming and partial oxidation. In steam-methane reforming, high-temperature steam is used to produce hydrogen from a methane source. The methane reacts with the steam in the presence of a catalyst, resulting in hydrogen, carbon monoxide, and small amounts of carbon dioxide. The carbon monoxide may then be further reacted with steam and a catalyst to produce carbon dioxide and more hydrogen.

The other method of hydrogen production is partial oxidation. Methane and other hydrocarbons react with a limited amount of oxygen which causes the hydrocarbons to not fully oxidize. Without this full oxidization, the reaction products contain primarily hydrogen and carbon monoxide. These reaction products can be subjected to a water-gas shift reaction, causing the carbon monoxide to react with the water resulting in carbon dioxide and additional hydrogen^[1].

Before disbursement to a customer, hydrogen fuel may need additional treatment, like cooling, pressurizing, and purifying. The molecule itself, however, largely remains unaltered.

• 1. Electrical generation: There are two primary ways to generate electricity. The first is the spinning of a magnet around a coil of wire, or vice versa, which creates an electrical current. Systems that use this method are commonly referred to as generators. The second utilizes the photovoltaic effect, which is the transformation of light into electrical energy. Generators are found in many common forms of electrical generation. The use of generators in electrical generation can range from combustion plants that combust a material to heat water, creating steam that spins a turbine-generator producing electricity; to plants that combust materials to spin the turbine itself; to windmills that spin a generator; to hydroelectric dams that use the force of water to power a generator; to nuclear plants that use the radiated heat to make steam and spin a turbine-generator. Generally, the electrons that comprise electricity are "manufactured," or generated, through either generators or the photovoltaic effect. As electricity is transmitted and distributed to the end-consumer, it may undergo voltage changes, but the electrons themselves are not created or destroyed in that process.
  2. The end of Enterprise Zones (EZs): Prior to 2013, California allowed a series of geographically based incentives designed to encourage business investment and promote the creation of new jobs in economically distressed areas. These incentives were collectively called the EZ Program. The EZ Program authorized the designation of up to 42 EZs, and businesses within these EZs were eligible for a tax credit based on SUT paid and a tax credit based on a certain percentage of wages paid to certain individuals with barriers to employment. Additionally, banks lending to businesses in an EZ received a net interest deduction to encourage investment in designated areas.

In 2013, the Legislature enacted AB 93 (Committee on Budget), Chapter 69, Statutes of 2013, which repealed EZs and replaced them with a series of alternative tax incentives, among other provisions. To promote continued economic development, AB 93 included three new tax incentives as replacements to EZ incentives. These incentives were the California Competes Tax Credit, the New Hiring Tax Credit, and the partial SUT exemption for MR&D.

• 1. An electric expansion: In 2017, the Legislature enacted AB 398 (E. Garcia) Chapter 135, Statutes of 2017, which expanded the partial SUT exemption for MR&D among other provisions. Specifically, AB 398 included in the exemption TPP purchased by certain electrical generation facilities, operators of electric power distribution systems, or electric power brokers if used primarily in the production or generation of electric power or the storage and distribution of electric power. Importantly, the NAICS publication describes electric power distribution systems as consisting of lines, poles, meters, and wiring, and electric power brokers as entities that arrange the sale of electricity via power distribution systems operated by others.
  2. This bill: As currently drafted, this bill would expand the partial SUT exemption for MR&D by including new NAICS codes in the definition of "qualified persons," modifying the definition of "processing," and adding to the definition of "qualified TPP." Specifically, this bill would add certain retail fueling stations to the definition of "qualified persons" and would provide that "processing" includes the altering, converting, conditioning, or other preparation of hydrogen or electricity for the purposes of selling the hydrogen for fueling, or the electricity for charging, a vehicle. Additionally, this bill would expand the definition of "qualified TPP" to include hydrogen fueling and charging station equipment.
  3. Diverging from intent: The partial SUT exemption for MR&D was established as a replacement to the rescinded income tax credit on amounts of SUT paid for manufacturing equipment. The purpose of this exemption is to acknowledge pyramiding, or the stacking of SUT liability on component parts of a supply chain that, together, create TPP that will be sold at retail. Indeed, existing law further acknowledges pyramiding by exempting from SUT qualifying TPP that is used in the manufacturing of TPP that will be sold at retail and subject to a SUT. As an example, a rocking horse manufacturer would be entitled to a SUT exemption on the lumber the manufacturer uses to make the rocking horse. Moreover, existing provisions under the SUT Law provide a "sale for resale" exemption. In other words, if a person buys TPP that they intend to resell in their normal course of business, then the purchase of that TPP by that person is generally exempt from SUT.

It is unclear that any substantive manufacturing or production occurs at the retail level of a transaction. Generally, electricity is created at a generation facility and hydrogen at a plant. These processes occur much earlier in the supply chain than where retail sales of electricity or hydrogen occur. One might reasonably question whether expanding the SUT exemption to the retail level of transactions creates a questionable precedent.

• 1. Pressing the precedent: An astute observer might note that the expansion of the partial SUT exemption for MR&D under AB 398 incorporated "storage and distribution" as a qualifying activity. One might reasonably claim that those activities are an expansion beyond manufacturing or, in the case of manufacturing electricity, generation. Committee staff would note, however, that certain forms of renewable energy generation, like wind and solar, do not align their peak output with peak electricity demand. In order to prevent the generated electrons from being wasted, storage is necessary to align the demand for that electricity with generation sources that are not "on-demand." Thus, storage and distribution form an integral part of productively generating electricity from certain sources.
  2. Committee's tax expenditure policy: SB 1335 (Leno), Chapter 845, Statutes of 2014, added R&TC Section 41, which recognized that the Legislature should apply the same level of review used for government spending programs to tax credits introduced on or after January 1, 2015. AB 263 (Burke), Chapter 743, Statutes of 2019, extended the requirements in R&TC Section 41 to all tax expenditure measures under the PIT Law, the Corporation Tax Law, and the SUT Law introduced on or after January 1, 2020.

A tax expenditure proposal must outline specific goals, purposes, and objectives that the tax expenditure will achieve, along with detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets those stated goals, purposes, and objectives. In addition to the R&TC Section 41 requirements, this Committee's policy also requires that all tax expenditure proposals contain an appropriate sunset provision to be eligible for a vote^[2]. Sunsets are required because eliminating a tax expenditure generally requires a 2/3^rd vote. These requirements must be satisfied before a bill can receive a vote in this Committee. This bill contains an appropriate sunset and complies with the requirements of R&TC Section 41.

• 1. Prior legislation:
     1. AB 1951 (Grayson), of the 2021-22 Legislative Session, would have made the partial SUT exemption for MR&D a full exemption for certain purchases. AB 1951 was vetoed by the Governor.
     2. AB 398 (E. Garcia), Chapter 135, Statutes of 2017, expanded the partial SUT exemption for MR&D to include electrical production or generation, or electrical storage and distribution, and expanded the definition of "qualified persons."
     3. AB 93 (Committee on Budget), Chapter 69, Statutes of 2013, repealed the EZ Program and corresponding incentives, and enacted the partial SUT exemption for MR&D, the New Hiring Tax Credit, and the California Competes Tax Credit, among other provisions.

REGISTERED SUPPORT / OPPOSITION:

Support

Air Water America, Inc.

California Electric Transportation Coalition

California Hydrogen Business Council

California Hydrogen Coalition

Center for Sustainable Energy

Energy Independence Now

EV Realty

Forum Mobility

Hydrogen-XT, Inc.

Iwatani Corporation of America

Nel Hydrogen

Plug-in America

Ric Energy

Sacramento Municipal Utility District

Toyota Motor Company

Valley Clean Air Now

Opposition

California Teachers Association

Analysis Prepared by: Harrison Bowlby / REV. & TAX. / (916) 319-2098

1. U.S. Department of Energy, Hydrogen Production: Natural Gas Reforming, https://www.energy.gov/cmei/fuels/hydrogen-production-natural-gas-reforming, accessed June 2026. ↑

2. An "appropriate sunset provision" shall mean five years, except in the case of a tax expenditure measure providing relief to California veterans, in which case "appropriate sunset provision" shall mean 10 years. ↑

 THIRD READING  

Bill No: SB 1424

Author: Archuleta (D)

Amended: 4/23/26

Vote: 21- Urgency

SENATE ENVIRONMENTAL QUALITY COMMITTEE: 6-0, 4/22/26

AYES: Blakespear, Valladares, Allen, Dahle, Gonzalez, Hurtado

NO VOTE RECORDED: Menjivar

SENATE REVENUE AND TAXATION COMMITTEE: 5-0, 5/6/26

AYES: McNerney, Alvarado-Gil, Ashby, Becker, Grayson

SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/14/26

AYES: Cervantes, Seyarto, Cabaldon, Dahle, Grayson, Richardson, Wahab

SUBJECT: Sales and use taxes: zero-emission vehicle fueling

SOURCE: California Hydrogen Coalition

DIGEST:

This bill expands the sales and uses a tax manufacturing exemption to tangible personal property purchased to process, store, or prepare hydrogen or electricity for retail sale as motor vehicle fuel or component parts to construct an electric vehicle charging or hydrogen fueling station.

ANALYSIS:

Existing law:

1. Defines a tax expenditure as a credit, deduction, exclusion, or any other tax benefit provided by the state. (Revenue and Tax Code (RTC) § 41(b))
2. Requires the following of new tax expenditures:
   1. Specific goals, purposes, and objectives;
   2. Detailed performance indicators for the Legislature to use to determine whether a tax expenditure meets its goals, purposes, and objectives; and
   3. Data collection requirements to measure the performance indicators. (RTC § 41(a))
3. Establishes a sales and use tax on the retail sale of tangible personal property of 7.25%. (RTC § 6051 et seq.)
4. Defines tangible personal property as personal property which can be seen, weighed, measured, felt, or touched. (RTC § 6016)
5. Exempts several goods from the sales and use tax including but not limited to:
   1. Gas, electricity, and water;
   2. Farm equipment and machinery;
   3. Gasoline and diesel used in agriculture;
   4. Racehorse breeding stock; and
   5. Specified food products for human consumption. (RTC § 6353, 6356.5, 6357.1, 6358.5, and 6359)
6. Partially exempts, pursuant to AB 93 (Budget Committee, Chapter 69, Statutes of 2013), tangible personal property to be used in manufacturing, processing, refining, or recycling of tangible personal property from the sales and use tax. (RTC § 6377.1)
7. Defines “processing” as the physical application of the materials and labor necessary to modify or change the characteristics of tangible personal property. (RTC § 6377.1(a)(7))

This bill:

1. Expands the tangible personal property eligible for the manufacturing tax exemption to:
   1. Property purchased for use exclusively in the processing, altering, or other preparation required for the converting or conditioning of hydrogen or electricity for the fueling of a zero-emission vehicle ultimately sold at retail;
   2. Special purpose buildings and foundations used in the processing, conditioning, storage, or preparation of hydrogen for sale at retail for use in a motor vehicle;
   3. Hydrogen fueling and charging station equipment and component parts.
2. Does not expand the tangible personal property eligible for the manufacturing tax exemption to property purchased for the production of hydrogen fuel from raw materials.
3. Adds gasoline stations as retail locations eligible for the manufacturing sales tax exemption.
4. Precludes this partial tax exemption from being backfilled from the Greenhouse Gas Reduction Fund (GGRF).
5. Establishes the following goals:
   1. To encourage investments in fueling infrastructure to support zero-emission vehicles;
   2. To support hydrogen fueling and charging station targets;
   3. To reduce the sales tax burden on the purchase of component parts necessary for processing hydrogen and electricity into their completed form for use by a zero-emission vehicle.
6. Establishes the following performance indicators:
   1. The number of hydrogen fuel and charging stations built in the state;
   2. The number of commercially available zero-emission vehicles and the number solid in the state per year; and
   3. The total amount of sales and use tax exempted through this bill.
7. Requires the California Air Resources Board (CARB) to review the effectiveness of the tax exemption in the annual Hydrogen Assessment.
8. Requires the California Energy Commission (CEC) to review the effectiveness of the tax exemption in its annual Electric Vehicle Charging Assessment.
9. Goes into effect immediately as a tax levy.

Background

1. California’s zero-emission vehicle goals. Governor Newsom’s Executive Order N-79-20 requires all passenger vehicles sold in the state to be zero emissions by 2035.^[1] The California Air Resources Board (CARB) set targets of zero emission vehicle (ZEV) sales approaching 2035, starting with 35% of sales in 2026 to 100% of sales in 2035.^[2] Since 2010 and as of 2026, California has sold 2.5 million electric vehicles, exceeding previous goals set by Governor Brown.^[3] However, rapid growth of ZEVs necessitates robust, accessible, and convenient charging (and, for hydrogen, refueling) infrastructure.
2. Challenges to ZEV infrastructure. ZEV charging and fueling poses numerous infrastructure challenges: new strain on the electric grid, accessibility of charging, and local permitting.^[4],[5] Barriers to home charging include not owning the residence, not owning a parking space, and high installation costs.^[6] High installation costs include not only the actual charger but updating the electric wiring of older homes which do not have the electrical capacity to charge a vehicle. The cost of EV chargers depends on its voltage; a level 1 EV charger plugs into the typical outlet. A level 2 EV charger is 240 volts, charges an EV more quickly, and requires specialized equipment ranging from $500 to $1,000 (not including home upgrades).^[7] Level 3 chargers are the fastest EV chargers and are typically installed for public use, rather than residential.

For public charging infrastructure, the Stanford Institute for Economic Policy Research (SIEPR) cites permitting and zoning as key barriers to the development of EV charging stations.⁸ Executive Order B-48-40 required the installation of 200 hydrogen fueling stations and 250,000 zero-emissions vehicle chargers by 2025. As of 2025, California has over 200,000 EV chargers in addition to 800,000 chargers in single family homes.^[8] Additionally, as of 2025, California has 61 hydrogen fueling stations, 50 of which are retail locations.^[9]

1. Hydrogen fuel cell vehicles. Hydrogen fuel cell vehicles (HFCVs) are a form of electric vehicle which uses hydrogen fuel. HFCVs use the same electric motor as a traditional electric vehicle (EV) but rather than charging the car directly with electricity, the car makes its electricity from hydrogen fuel. This is also in contrast to a hydrogen combustion vehicle, which uses the same mechanism as a traditional combustion engine but with hydrogen fuel rather than gasoline.

There are many benefits to HFCVs. HFCVs are zero-emission vehicles, releasing only water vapor as a byproduct. HFCVs are safer than hydrogen combustion vehicles and charge (or rather, refuel) faster than traditional EVs. However, the HFCV market is small, representing only 1.1% of ZEV car sales in 2023.^[10] In that year, there were only 12,000 hydrogen cars on the road and only two models available. Consumer options have not significantly increased; there are currently three models available. Despite low adoption, the California Energy Commission (CEC) has spent over $200 million on hydrogen fuel infrastructure.¹²

1. The creation of hydrogen fuel. There are two categories of methods to create hydrogen fuel: thermal processes and electrolytic processes. Thermal processes use high heat and steam to separate hydrogen molecules from hydrocarbons. These hydrocarbons can come from natural gas, diesel, renewable liquid fuels (such as ethanol), or biomass, among other sources. The process creates hydrogen and carbon dioxide (CO₂), a less potent but longer lasting greenhouse gas compared to methane (CH₄) in natural gas. Electrolytic processes separate water into oxygen and hydrogen, a cleaner but less common and more costly method.

Electric vehicles, either traditional or hydrogen fuel cell, are more efficient than combustion vehicles. Traditional EVs benefit from the efficiency gain and California’s electricity mix. Half of the electricity in California is derived from non-fossil sources (renewables and nuclear).^[11] In contrast, 95% of hydrogen fuel is produced using thermal processes with natural gas, a fossil fuel.^[12]

Comments

1. Purpose of Bill. According to the author, “Senate Bill 1424 builds on California’s commitment to clean energy by extending the state’s existing partial sales and use tax exemption to zero-emission vehicle fueling infrastructure. With transportation responsible for roughly half of California’s greenhouse gas emissions, accelerating the deployment of charging and hydrogen fueling stations is essential to meeting our climate and air quality goals. SB 1424 leverages an already successful, CDTFA-administered program to lower upfront costs for critical infrastructure, ensuring that private investment can scale more quickly and efficiently.

“At a time when federal commitment to clean transportation programs has diminished, California must act decisively to maintain momentum and protect its climate leadership. This bill provides a practical, near-term solution to help offset those losses and keep infrastructure deployment on track. By supporting both electric and hydrogen fueling technologies, SB 1424 takes a forward-looking, technology-neutral approach that maximizes innovation and market flexibility. Ultimately, SB 1424 strengthens California’s clean transportation future while reinforcing our commitment to economic competitiveness and environmental stewardship.”

1. Money isn’t the problem. By partially exempting ZEV charging and fueling purchases from the state sales tax, SB 1424 aims to incentivize the development of charging and fueling stations by private entities. However, SB 1424 does not address the largest barriers to the development of ZEV infrastructure. For traditional EVs, experts cite permitting and zoning as a larger barrier to charging infrastructure.

For hydrogen fueling, CEC has already given over $250 million without a significant increase in hydrogen fueling stations.^[13] The 2023 Annual Assessment of the Hydrogen Refueling Network in California from the CEC and CARB reported 66 hydrogen fueling stations achieved open retain status, increasing by 4 since the previous report. In 2025, CARB reported only 61 total stations with 50 of those available for retail. If so, the number of stations has decreased despite state funding.¹² The CEC report highlights that cost is one barrier: 50 stations lost a 2021 grant and were not built. However, the state missed that year’s hydrogen fueling station goal by more than 100 stations.

Other barriers that the CEC highlights include the cost of hydrogen and station reliability. In 2023, 12 of the 66 locations were offline for more than 30 days. The open stations operated only at 60% capacity due to equipment failures and supply chain constraints. For hydrogen fueling stations, funding is only half the battle.

1. Problem performance indicators. The goals and performance indicators in SB 1424 include traditional EVs and EV charging stations while doing little to help an already thriving market. It is unlikely that SB 1424 will have a major impact on the traditional EV ecosystem. Given there are already a number of state programs aimed at the actual barriers to EV adoption, including traditional EVs in the SB 1424 performance indicators could make the tax exemption appear more successful than it truly is. The SB 1424 tax exemption could double-count charging stations and traditional EV purchases that were already incentivized by other programs, such as Clean Cars 4 All or the California Electric Vehicle Infrastructure Project.^[14],[15]
2. Sidestepping California’s Climate Goals. The transition to ZEVs is an essential step in GHG emissions reductions. Transportation accounts for 50% of the state’s GHG emissions.^[16] While hydrogen fuel can help California reduce transportation emissions, it does so by moving the emissions elsewhere rather than meaningfully reducing emissions. 95% of hydrogen fuel is derived from fossil fuels.

Related/Prior Legislation

AB 32 (Nunez, Chapter 488, Statutes of 2006) authorized CARB to use market-based compliance methods, such as Cap-and-Invest to achieve the state’s climate goals.

AB 118 (Nunez, Chapter 750, Statutes of 2007) Provided at least $15 million annually for hydrogen fueling stations through 2030 and requires an annual evaluation on the deployment of passenger fuel cell electric vehicles and needs for hydrogen station network expansion.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Senate Appropriations Committee:

• The California Department of Tax and Fee Administration (CDTFA) estimates that this bill would result in General Fund revenue losses of $843,000 in 2026-27, $1.7 million in 2027-28, and $1.3 million in 2028-29. CDTFA’s administrative costs would be minor and absorbable.
• Administrative costs to the California Air Resources Board (CARB) and the California Energy Commission (CEC) have yet to be identified.

SUPPORT: (Verified 5/14/2026)

California Hydrogen Coalition (Source)

California Electric Transportation Coalition

OPPOSITION: (Verified 5/14/2026)

None received

Prepared by: Alyssa Poletti / E.Q. / (916) 651-4108

5/14/26 16:58:05

**** END ****

1. Governor’s Office (2020) Governor Newsom Announces California Will Phase Out Gasoline-Powered Cars & Drastically Reduce Demand for Fossil Fuel in California’s Fight Against Climate Change, https://www.gov.ca.gov/2020/09/23/governor-newsom-announces-california-will-phase-out-gasoline-powered-cars-drastically-reduce-demand-for-fossil-fuel-in-californias-fight-against-climate-change/ ↑

2. CARB (2022) California moves to accelerate to 100% new zero-emission vehicle sales by 2035, https://ww2.arb.ca.gov/news/california-moves-accelerate-100-new-zero-emission-vehicle-sales-2035 ↑

3. Cohen-Petrow, C. (2026) California exceeds clean car goal despite declining federal support, Los Angelos Times. https://www.latimes.com/business/story/2026-01-20/california-exceeds-clean-car-goal-despite-declining-federal-support ↑

4. US Dept. of Transportation (2025) Implementation Challenges and Evolving Solutions for Rural Communities, https://www.transportation.gov/rural/ev/toolkit/ev-benefits-and-challenges/challenges-and-evolving-solutions ↑

5. Conrad, E, et al. (2024) Overcoming roadblocks to California’s public EV charging infrastructure, Stanford Institute for Economic Policy Research. https://siepr.stanford.edu/publications/policy-brief/overcoming-roadblocks-californias-public-ev-charging-infrastructure ↑

6.  Pezeshknejad, P., et al. (2026) Barriers to electric vehicle home charging and impacts on adoption, Transportation Research. https://www.sciencedirect.com/science/article/pii/S1361920926000556 ↑

7. Costco Auto Program (2025) The Cost of Charging an EV at Home, https://www.costcoauto.com/automotive_articles/ev/the-cost-of-charging-an-ev-at-home.aspx ↑

8. CEC (2025) California Exceeds 200,000 Electric Vehicle Chargers, https://www.energy.ca.gov/news/2025-09/california-exceeds-200000-electric-vehicle-chargers ↑

9. Hydrogen Fuel Cell Partnership (2025) California's 2025 Hydrogen Infrastructure Report: Key Findings for the Hydrogen Community, https://h2fcp.org/blog/californias-2025-hydrogen-infrastructure-report-key-findings-hydrogen-community ↑

10. Lazo, A. (2023) Hardly anyone owns a hydrogen car. California may pay up to $300 million for fuel stations anyway, Calmatters. https://calmatters.org/environment/2023/08/california-hydrogen-cars-funding/ ↑

11. US Energy Information Administration (2023) California: End-use energy consumption 2023, estimates. https://www.eia.gov/states/CA/overview ↑

12. US DOE, Hydrogen Fuel Basics, https://www.energy.gov/cmei/fuels/hydrogen-fuel-basics ↑

13. CEC & CARB (2023) Joint Agency Staff Report on Assembly Bill 8: 2023 Annual Assessment of the Hydrogen Refueling Network in California, CEC-600-2023-069 ↑

14. California New Car Dealers Association, EV Rebate Resources, https://www.cncda.org/ev-rebate-resources/ ↑

15. CEC, Electric Vehicles & Charging Infrastructure, https://www.energy.ca.gov/programs-and-topics/programs/clean-transportation-program/clean-transportation-funding-areas-0 ↑

16. CEC, Transforming Transportation, https://www.energy.ca.gov/about/core-responsibility-fact-sheets/transforming-transportation ↑

SENATE COMMITTEE ON

Senator Sabrina Cervantes, Chair

2025 - 2026 Regular Session

SB 1424 (Archuleta) - Sales and use taxes: zero-emission vehicle fueling

Bill Summary:

SB 1424 would expand the partial sales and use tax exemption for manufacturing equipment to include purchases of qualified tangible personal property for hydrogen fueling stations and electric vehicle charging stations.

Fiscal Impact:

• The California Department of Tax and Fee Administration (CDTFA) estimates that this bill would result in General Fund revenue losses of $843,000 in 2026-27, $1.7 million in 2027-28, and $1.3 million in 2028-29. CDTFA’s administrative costs would be minor and absorbable.
• Administrative costs to the California Air Resources Board (CARB) and the California Energy Commission (CEC) have yet to be identified.

Background:

Tax expenditure programs (TEPs) are special tax provisions that reduce the amount of revenues the “basic” tax system would otherwise generate in order to provide (1) benefits to certain groups of taxpayers, and/or (2) incentives to encourage certain types of behavior and activities, such as charitable giving. Specifically, current law provides for, among other things, various income and corporation tax credits and deductions, as well as exemptions from the sales and use tax. The Department of Finance is required to publish a list of TEPs (currently totaling several hundred), which currently exceed $94 billion annually.

Except where a specific exemption or exclusion is provided, current law imposes SUT on all retailers for the privilege of selling tangible personal property (TPP) at retail in California, or on the storage, use, or other consumption in this state of TPP purchased from a retailer. Unless purchasers pay the sales tax to the retailer, they are liable for the use tax, which the law imposes on any person consuming tangible personal property in the state. The use tax is the same rate as the sales tax.

After CDTFA collects SUT revenue ($79 billion in 2023-24), it allocates the money to various state and local funds. Roughly half—collected from an approximately 3.9 percent rate—goes to the General Fund and can be spent on any state program, such as education, health care, and criminal justice. Another 1.25 percent, known as the Bradley-Burns rate, goes to cities and counties for general purposes. Three sales tax funds have uniform state rates and support specified programs—a 1.0625 percent rate for 2011 realignment (county-administered criminal justice, mental health, and social service programs); a 0.5 percent rate for 1991 realignment (county-administered health and social services programs); and a 0.5 percent rate for city and county public safety programs pursuant to Proposition 172 (1993). Additionally, some local governments levy optional local rates—known as Transactions and Use Taxes (TUTs)—and a small portion of these funds are used for general purposes. As of December 31, 2025, the average statewide SUT rate was 8.84 percent.

Many items, such as prescription drugs, food, and poultry litter, are fully exempt from the SUT in California. Other items are exempted only from the state sales tax of 3.9375 percent, but not the local share, such as farm equipment and machinery, diesel fuel used for farming and food processing, teleproduction and postproduction equipment, timber harvesting equipment and machinery, and racehorse breeding stock.

In 2013, the Legislature substantially restructured California’s economic development framework through the enactment of AB 93 and SB 90, which eliminated the State’s longstanding enterprise zone and geographically targeted incentive programs. In their place, the Legislature established a new suite of statewide economic incentives intended to promote employment growth, business investment, and industrial competitiveness. These incentives included the New Employment Credit, the California Competes Tax Credit, and a partial SUT exemption for manufacturing and research and development equipment (commonly referred to as the Manufacturing Exemption).

The Manufacturing Exemption provides a partial exemption from the General Fund portion of the SUT for qualified purchases of manufacturing and research and development equipment. Initially enacted for taxpayers primarily engaged in specified manufacturing and research activities identified under the North American Industry Classification System (NAICS), the exemption became operative on July 1, 2014, and was originally scheduled to sunset on July 1, 2022. The program limited qualifying purchases to $200 million annually per taxpayer.

In 2017, as part of the broader legislative agreement extending California’s greenhouse gas reduction and cap-and-trade framework under AB 398, the Legislature expanded eligibility for the exemption to include specified electric power generation, transmission, and distribution industries. The same legislation also extended the exemption through January 1, 2030, thereby aligning the incentive with the state’s longer-term climate, energy reliability, and industrial policy objectives.

Under current law, the exemption applies to qualified tangible personal property used in manufacturing, processing, refining, fabricating, recycling, research and development, equipment maintenance and testing, and the generation, production, storage, and distribution of electric power. The exemption also applies in certain circumstances to equipment acquired for use by contractors performing qualifying activities. To claim the exemption, purchasers must provide retailers with an exemption certificate at the time of sale. The exemption is subject to recapture if the property is converted to a nonqualifying use or removed from California within one year of purchase.

The Legislature also addressed the fiscal implications of the expanded exemption as part of the 2017 climate policy package. AB 398 required the Department of Finance to offset General Fund revenue losses attributable to the expanded electric utility exemption using revenues from the Greenhouse Gas Reduction Fund (GGRF). Subsequent legislation, AB 1817, clarified that mandatory backfill obligations applied only to revenue losses associated with the expansion enacted under AB 398, while reimbursement for other revenue losses attributable to the Manufacturing Exemption would remain discretionary.

Over time, the Manufacturing Exemption has largely supplanted earlier incentive programs that provided similar tax benefits to industrial and energy-sector taxpayers, including programs administered by the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA). Because the exemption applies broadly and is administered directly through CDTFA, eligible taxpayers generally claim the benefit through a streamlined exemption certificate process at the point of sale, rather than through a separate application and approval structure.

Proposed Law:

This bill, among other things, would do the following:

• Provide a General Fund SUT exemption for qualified TPP purchased for use by a qualified person to be used exclusively in the processing, altering, or other preparation required for converting or conditioning hydrogen or electricity for the fueling of a zero-emission vehicle.
• Provide a General Fund SUT exemption for qualified TPP purchased by a contractor for use in the performance of a construction contract for a qualified person who will use that property as an integral part of an activity listed above.
• Require CARB to review the effectiveness of the tax exemption by providing updates on the performance indicators in its annual Hydrogen Assessment and to post the updates on its website by December 31 of each year.
• Require CEC to review the effectiveness of the tax exemption by providing updates on the performance indicators in its annual Electric Vehicle Charging Assessment and to post the updates on its website by December 31 of each year.

Related Legislation:

• AB 32 (Nunez, Chapter 488, Statutes of 2006) authorizes the California Air Resources Board (CARB) to use market-based compliance methods, such as Cap-and-Invest to achieve the state’s climate goals.
• AB 118 (Nunez, Chapter 750, Statutes of 2007) provides at least $15 million annually for hydrogen fueling stations through 2030 and requires an annual evaluation on the deployment of passenger fuel cell electric vehicles and needs for hydrogen station network expansion.

Staff Comments: For calendar year 2025, claims filed with CDTFA for the current SUT exemption reduced General Fund revenues by $500 million. Additionally, the bill would specify that its expanded exemption would not be backfilled from GGRF.

Any local government costs resulting from the mandate in this measure are not state-reimbursable because the mandate only involves the definition of a crime or the penalty for conviction of a crime.

-- END --

SENATE COMMITTEE ON REVENUE AND TAXATION

Senator Jerry McNerney, Chair

2025 - 2026 Regular

Sales and use taxes: zero-emission vehicle fueling

Expands the partial sales and use tax exemption for manufacturing equipment to include purchases of qualified tangible personal property for hydrogen fueling stations and electric vehicle charging stations.

Background

Tax expenditures. California law allows various tax incentives, such as credits, deductions, exemptions, and exclusions. When a tax law is determined to have a cost in the form of foregone revenues, such as a sales and use tax exemption, state law refers to them as “tax expenditures.” The Legislature enacts such tax incentives to compensate taxpayers for incurring certain expenses, such as costs related to child adoption, or to influence certain behaviors, such as participating in charitable giving. The Legislature uses tax incentives to encourage taxpayers to do something they would not otherwise do but for the tax incentive. The Department of Finance must publish an annual list of tax expenditures, currently totaling around $94.2 billion in forgone general fund revenue.

Sales and use tax (SUT). State law imposes the sales tax on every retailer selling tangible personal property in this state. Retailers must register with the California Department of Tax and Fee Administration (CDTFA) and remit sales tax amounts collected at sale to CDTFA. If the purchaser does not pay the sales tax to the retailer, the purchaser is liable for paying use tax to the CDTFA. The use tax is imposed on any person consuming tangible personal property in the state. The use tax must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase. The use tax rate is the same as the sales tax rate. The table below shows that the current statewide SUT rate is 7.25%. Additionally, cities and counties may increase the sales and use tax rate up to 2% with voter approval for specific or general purposes pursuant to the California Constitution’s vote requirements.

Tax exemptions. Many items, such as prescription drugs, food, and poultry litter, are fully exempt from the SUT in California. Other items are exempted only from the state sales tax of 3.9375%, but not the local share, such as farm equipment and machinery, diesel fuel used for farming and food processing, teleproduction and postproduction equipment, timber harvesting equipment and machinery, and racehorse breeding stock.

State Sales and Use Tax Exemption for Manufacturing Equipment and Development Equipment. In 2013, the Legislature enacted AB 93 (Committee on Budget) and SB 90 (Committee on Budget and Fiscal Review), which reformed California’s economic development policies by eliminating enterprise zones and other geographically targeted tax programs, replacing them with three new tax benefits: the New Employment Credit, the California Competes Tax Credit, and the Manufacturing Exemption.

The Manufacturing Exemption authorized a state-only (3.9375%) sales and use tax exemption on purchases of manufacturing equipment used by taxpayers primarily engaged in a line of business described in North American Industry Classification System (NAICS) codes 3111 to 3399 for manufacturers, or 541711 or 541712 for research and development. The credit was capped at $200 million annually per taxpayer, effective July 1, 2014, and ending July 1, 2022. In 2017, as part of an agreement to extend the Global Warming Solutions Act (AB 398, E. Garcia), the Legislature expanded the exemptions for NAICS codes 22111 to 221118 and 221122, which pertain to electric power generators or distributors, and extended the exemption until January 1, 2030.

The exemption applies to property a taxpayer uses:

• In any stage of the manufacturing, processing, refining, fabricating, or recycling of tangible personal property;
• In research and development;
• To maintain, repair, measure, or test any qualified property subject to the exemption; and,
• To generate, produce, or store and distribute electric power.

The exemption also applies in a more limited fashion when purchasing equipment for use by a contractor. Purchasers must provide an exemption certificate at purchase for the exemption to apply. The exemption does not apply if the purchaser converts the equipment from an exempt use or removes it from the state within one year from the date of purchase.

While state law exempts many forms of property from both the state and local shares of the sales and use tax, the current sales and use tax exemption for equipment used in manufacturing and research and development only applies to the State General Fund shares. Partial exemptions also do not reduce sales and use tax revenues that flow to local agencies from the other increments. For calendar year 2025, actual amounts claimed on returns filed with CDFTA resulted in lost sales and use tax revenue of $499.8 million. Based on reporting by equipment sellers, manufacturers claimed 71.69% of the total; electric utilities 26.8%; and agricultural businesses 1.51%.

AB 398 also required the Department of Finance to backfill the General Fund for the revenue loss incurred as a result of this exemption from the Greenhouse Gas Reduction Fund (GGRF). AB 1817 (E. Garcia, 2017) modified the backfill requirement to specify that only revenue loss caused by the expanded exemption was subject to mandatory backfill and that all other losses to the General Fund attributable to this exemption were discretionary.

The manufacturing sales and use tax exemption largely superseded existing programs, such as the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA), as it applied to almost the same taxpayers. Thus, instead of applying for the CAEATFA sales and use tax exclusion, taxpayers simply print a resale certificate from the CDTFA website and present it to the retailer to reduce the sales tax rate for the purchase.

Seeking to encourage investments in zero-emission vehicle (ZEV) infrastructure, the author wants to expand the existing manufacturer’s exemption to purchases made by specified NAICS for the construction of hydrogen fueling and charging stations that convert or condition hydrogen or electricity for ZEVs.

Proposed Law

Senate Bill 1424 expands the partial sales and use tax exemption for manufacturing equipment, beginning in 2027, to include purchases of qualified tangible personal property for use by a business with NAICS codes 447110 and 447190, pertaining to gas stations, or a construction contractor, if they are for the taxpayer’s qualified use, which the bill expands to include purchases used exclusively in the processing, altering, or other preparation required for converting or conditioning hydrogen or electricity for the fueling of a ZEV. The bill excludes purchases exclusively for the production of hydrogen fuel from raw materials. The bill expands the definition of “qualified tangible personal property” to include:

• Hydrogen fueling station equipment and component parts, including, but not limited to, onsite storage tanks, cryogenic pumps, vaporizers, compressors, chillers, piping, valves, dispensers, meters, controls, safety systems, and associated operating structures.
• Charging station equipment and component parts, including, but not limited to, chargers or dispensers, power cabinets, underground conduits, transformers, switchgear or switchboards, energy storage systems, meters, cables and connectors, safety systems, and associated operating structures.
• Special-purpose buildings and foundations, other than those used solely for warehousing purposes, used as an integral part of the manufacturing, processing, refining, fabricating, or recycling process or constitutes a research or storage facility used during those processes; or generation, production, or storage and distribution of electric power or hydrogen for sale at retail for use as a motor vehicle fuel at a hydrogen refueling station.

The measure also specifies that the expanded exemption authorized by this measure shall not be backfilled from GGRF and makes legislative findings and declarations to comply with Section 41 of the Revenue and Taxation Code.

State Revenue Impact

Pending.

Comments

1. Purpose of the bill. According to the author, “Senate Bill 1424 builds on California’s commitment to clean energy by extending the state’s existing partial sales and use tax exemption to zero-emission vehicle fueling infrastructure. With transportation responsible for roughly half of California’s greenhouse gas emissions, accelerating the deployment of charging and hydrogen fueling stations is essential to meeting our climate and air quality goals. SB 1424 leverages an already successful, CDTFA-administered program to lower upfront costs for critical infrastructure, ensuring that private investment can scale more quickly and efficiently. At a time when federal commitment to clean transportation programs has diminished, California must act decisively to maintain momentum and protect its climate leadership. This bill provides a practical, near-term solution to help offset those losses and keep infrastructure deployment on track. By supporting both electric and hydrogen fueling technologies, SB 1424 takes a forward-looking, technology-neutral approach that maximizes innovation and market flexibility. Ultimately, SB 1424 strengthens California’s clean transportation future while reinforcing our commitment to economic competitiveness and environmental stewardship.”

2. “Windfall” or “but for” tax benefit? Tax expenditures produce two different outcomes. The first outcome is a “windfall,” where the tax expenditure rewards behavior that would have occurred without the tax benefit. The second outcome is a “but for tax benefit,” where a particular activity would not have occurred without the incentive created by the tax expenditure. Here, the SUT exemption likely serves as a “windfall” to retailers who entered the industry knowing they would have a SUT liability and were prepared to pass that cost on to their customers. However, this bill may also be considered a “but for” incentive if reducing SUT liability for hydrogen fuel and electric charging stations enables them to build more fueling stations and lowers the ultimate consumer fuel and charging costs. In which case, this tax incentive may also encourage the sale of ZEVs if more stations provide fuel and charging, and lower prices, but for this exemption. However, this result is speculative and hard to measure. The committee may wish to consider whether existing state programs that provide financial assistance for ZEV infrastructure would provide a more targeted and measurable benefit for consumers.

3. Revenue loss. Existing tax law provides various credits, deductions, exclusions, and exemptions for certain taxpayers. By authorizing a SUT exemption for hydrogen fueling and charging stations, SB 1424 will result in the General Fund receiving less revenue. As a result, the state will have to either reduce spending or increase taxes to offset the loss. Additionally, because Proposition 98 establishes a minimum funding guarantee for K-14 education in California, which generally represents roughly 40% of the state’s General Fund revenues, every dollar of General Fund loss results in approximately 40 cents less of funding for K-14 education.

4. Precedent. Tangible personal property is generally taxable, regardless of the purpose for purchase. If the Legislature allows a SUT exemption for hydrogen fuel and electric charging stations, why should it not extend the same treatment for the construction of home charging stations or charging stations built at other retail locations other than gas stations? This may lead to a slippery slope in which other alternative fuels and changing equipment are more broadly exempt from SUT, thereby eroding the tax base.

5. State, not local. In recent years, most new sales and use tax exemptions have been limited to the state share of the sales tax, such as equipment used in research and manufacturing, and equipment and fuel used in agriculture. SB 1424 continues this trend by extending an existing exemption that applies only to the State General Fund portion of the Sales and Use Tax. As a result, the bill should not negatively affect local revenues.

6. Partial exemptions. While state law exempts many forms of property from both the state and local shares of the sales and use tax, the current sales and use tax exemption for manufacturing equipment only applies to the State General Fund increment. Partial exemptions also do not reduce sales and use tax revenues that flow to local agencies. Taxpayers and retailers generally prefer full exemptions, not only to pay less tax but also because local rates vary in California, making calculating the amount of tax more cumbersome. In addition to manufacturing equipment, state law also contains exemptions for:

• Teleproduction Equipment
• Farm Equipment and Machinery
• Diesel Fuel Used in Farming Activities or Food Processing
• Timber Harvesting Equipment and Machinery
• Racehorse Breeding Stock
• Zero-emission Transit Buses
• Zero or near-zero emission motor vehicles

7. Right way? Under the existing Manufacturing Exemption, EV charging operators under NAICS code 221122, which pertains to electric power distribution, may qualify for the exemption if they are building and installing EV chargers. However, EV charging stations built by taxpayers with other NAICS would not qualify under the existing law. Thus, proponents of this measure argue that SB 1424 would create parity for the construction of EV charging stations by other NAICS codes and extend that treatment to hydrogen fueling stations. Although it is unclear to what extent, if any, taxpayers with NAICS code 221122 are utilizing this exemption for building EV chargers. However, the bill also expands the definition of qualified tangible property, which means other NAICS, as manufacturers, who build hydrogen or electric charging stations on their own properties, would benefit from this expanded exemption. The Committee may wish to consider whether a standalone exemption for the construction of hydrogen fueling stations and EV charging stations would produce a more targeted tax benefit.

8. Existing incentives. Under the existing Manufacturing Exemption, manufacturers of EV chargers and hydrogen fueling equipment would likely qualify under the following NAICS codes: 335999 (for making EV charger/station hardware), 333914 (for making hydrogen dispenser/station hardware), and 325120 (for making hydrogen gas), among others. Further, EV charging and hydrogen fueling stations are eligible to apply for other state credits.

• CAEATFA has awarded a sales tax exemption to 10 hydrogen projects: one is inactive, four are completed, and five are in progress. The completed projects had an estimated total exclusion amount of $1.5 million. The five active projects have a total estimated exclusion amount of $16 million. Of those active projects, $10 million of the exclusion is attributable to Element Lancaster 1 LLC for a renewable hydrogen project in Los Angeles. Additionally, CAEATFA has awarded an exclusion to 19 electric vehicle projects, only one of which – ChargePoint, Inc. – is for the production of electric vehicle charging stations. This project was completed, with an estimated exclusion of approximately $140,000.
• Additionally, the California Competes Tax Credit Committee has awarded approximately $23,350,000 of income tax credits to four electric vehicle manufacturing projects and $2,025,000 to two hydrogen fuel projects. This is in addition to any federal income tax credits the taxpayer might qualify for, such as the federal tax credit for businesses and individuals that install qualified alternative fuel refueling property, including hydrogen refueling stations or electric vehicle charging equipment. For business property, the credit generally equals 6% of the cost of the equipment, up to $100,000 per item.
• Further, the Fast Charge California Project, administered by the California Energy Commission (CEC), provides incentives for the purchase and installation of eligible direct current fast chargers. Incentives may cover up to 100% of approved project costs, up to $100,000 per charging port. Eligible sites must be publicly accessible, and applications benefiting disadvantaged, low-income, and tribal communities receive priority consideration. The application period closed on January 29, 2026.

The committee may wish to consider whether expanding other existing tax and grant programs would provide a more targeted incentive, guarantee economic net benefits, ensure job creation within the state, and help communities with the greatest need for ZEV infrastructure.

9. AB 118. Another active state incentive is the Clean Transportation Program (CTP), administered by the CEC, which was established by AB 118 (Nunez, 2007) to accelerate the development and deployment of clean, efficient, low-carbon alternative fuels and technologies. AB 118 was re-authorized by AB 8 (Perea, 2013), which preempted California Air Resources Board (CARB) authority to require publicly available hydrogen-fueling stations through regulation, and instead required CEC to fund the development of up to 100 such hydrogen stations from vehicle registration fee revenues in the amount of up to $220 million over the next 11-plus years. AB 118 also required CEC and CARB to jointly report annually on progress toward establishing a hydrogen fueling network, beginning on December 31, 2015. The CTP was re-authorized again by AB 126 (Reyes, 2023). AB 126 required CEC to annually fund at least $15 million in hydrogen fueling stations through 2030 and continue AB 118’s annual reporting mandate. According to the most recent published joint report by CEC and CARB, as of August 29, 2025, California has 61 hydrogen fueling stations, with Chevron developing two new stations. This figure is down from previous years, in which CARB reported having 62 hydrogen fueling stations as of July 15, 2024, and 66 the year before that. Additionally, as of April 2025, there were 14,128 registered fuel cell electric vehicles (HFCVs) in California, down from 2024, when CARB reported 14,429 HFCVs with active registrations. CARB also notes that there are plans for 112 hydrogen stations, though expansion is hampered by high prices and low demand.

10. Section 41. Section 41 of the Revenue and Taxation Code requires any bill enacting a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve and detailed performance indicators, along with data collection and reporting requirements (SB 1335, Leno, 2014). A bill that would authorize a new gross income exclusion is exempt from the requirement that the bill contain detailed performance indicators and data collection reporting if the Legislature determines there is no available data to collect and report (AB 3289, Committee on Revenue and Taxation, 2024). To satisfy these requirements, SB 1424 states that its specific goals, purposes, and objectives are:

• To encourage investments in the fueling infrastructure necessary to support ZEVs.
• To support the hydrogen fueling and charging station targets called for in Executive Orders B-48-18, N-27-25, and N-79-20.
• To reduce the sales tax burden on the purchase of component parts necessary for processing hydrogen and electricity into their completed form for use by ZEV.

The detailed performance indicators include the number of hydrogen fueling and charging stations built in the state, the number of commercially available ZEVs and the number sold in the state on an annual basis, and the total amount of sales and use tax exempted for qualified tangible personal property purchased for use by a qualified person used primarily in the fueling of a ZEV.

To aid the Legislature in determining whether this act meets the goals, purposes, and objectives, SB 1424, beginning January 1, 2028, and annually thereafter, directs:

• The State Air Resources Board to review the effectiveness of the tax exemption by providing updates on the performance indicators in its annual Hydrogen Assessment and to post the updates on its website by December 31 of each year.
• The Energy Commission to review the effectiveness of the tax exemption by providing updates on the performance indicators in its annual Electric Vehicle Charging Assessment and to post the updates on its website by December 31 of each year.

11. Double-referred. The Senate Rules Committee ordered a double referral for SB 1424: first to the Committee on Environmental Quality, which approved it by a vote of 6-0, and second to the Committee on Revenue and Taxation.

Support and Opposition

(5/1/26)

Support: California Electric Transportation Coalition (Sponsor)
California Hydrogen Coalition (Sponsor)

Opposition: None received.

-- END --

SENATE COMMITTEE ON ENVIRONMENTAL QUALITY

Senator Blakespear, Chair

2025 - 2026 Regular

Bill No: SB 1424

SUBJECT: Sales and use taxes: electric vehicle fueling

DIGEST: This bill expands the sales and use tax manufacturing exemption partially funded from the Greenhouse Gas Reduction Fund to tangible personal property purchased to process, store, or prepare hydrogen or electricity for retail sale as motor vehicle fuel or component parts to construct an electric vehicle charging or hydrogen fueling station.

ANALYSIS:

Existing law:

1. Defines a tax expenditure as a credit, deduction, exclusion, or any other tax benefit provided by the state. (Revenue and Tax Code (RTC) § 41(b))
   
2. Requires the following of new tax expenditures:
   1. Specific goals, purposes, and objectives;
   2. Detailed performance indicators for the Legislature to use to determine whether a tax expenditure meets its goals, purposes, and objectives; and
   3. Data collection requirements to measure the performance indicators. (RTC § 41(a))
3. Establishes a sales and use tax on the retail sale of tangible personal property of 7.25%. (RTC § 6051 et seq.)
4. Defines tangible personal property as personal property which can be seen, weighed, measured, felt, or touched. (RTC § 6016)
5. Exempts several goods from the sales and use tax including but not limited to:
   1. Gas, electricity, and water;
   2. Farm equipment and machinery;
   3. Gasoline and diesel used in agriculture;
   4. Racehorse breeding stock; and
   5. Specified food products for human consumption. (RTC § 6353, 6356.5, 6357.1, 6358.5, and 6359)
6. Partially exempts, pursuant to AB 93 (Budget Committee, Chapter 69, Statutes of 2013), tangible personal property to be used in manufacturing, processing, refining, or recycling of tangible personal property from the sales and use tax. (RTC § 6377.1)
7. Defines “processing” as the physical application of the materials and labor necessary to modify or change the characteristics of tangible personal property. (RTC § 6377.1(a)(7))
8. Requires money collected by the California Air Resources Board (CARB) through Cap-and-Invest auctions to be deposited into the Greenhouse Gas Reduction Fund (GGRF) through SB 1018 (Budget Committee, Chapter 39, Statutes of 2012).
9. Funds, pursuant to AB 398 (Garcia, Chapter 135, Statutes of 2017), a specified portion of the manufacturing sales and use tax exemption using funds from GGRF. (AB 398,)
10. Reauthorizes Cap-and-Invest and designates a tier system for expenditures from GGRF. (AB 1207, Irwin, Chapter 117, Statutes of 2025, and SB 840, Limon, Chapter 121, Statutes of 2025)

This bill:

1. Expands the tangible personal property eligible for the manufacturing tax exemption to:
   1. Property purchased for use exclusively in the processing, altering, or other preparation required for the converting or conditioning of hydrogen or electricity for the fueling of a zero-emission vehicle ultimately sold at retail;
   2. Special purpose buildings and foundations used in the processing, conditioning, storage, or preparation of hydrogen for sale at retail for use in a motor vehicle;
   3. Hydrogen fueling and charging station equipment and component parts including but not limited to:
      1. On-site storage tanks;
      2. Cryogenic pumps;
      3. Vaporizers;
      4. Compressors; and
      5. Other necessary components.
2. Adds gasoline stations as retail locations eligible for the manufacturing sales tax exemption.
3. Establishes the following goals:
   1. To encourage investments in fueling infrastructure to support zero-emission vehicles;
   2. To support hydrogen fueling and charging station targets;
   3. To reduce the sales tax burden on the purchase of component parts necessary for processing hydrogen and electricity into their completed form for use by a zero-emission vehicle.
4. Establishes the following performance indicators:
   1. The number of hydrogen fuel and charging stations built in the state;
   2. The number of commercially available zero-emission vehicles and the number solid in the state per year; and
   3. The total amount of sales and use tax exempted through this bill.
5. Requires the California Air Resources Board (CARB) to review the effectiveness of the tax exemption in the annual Hydrogen Assessment.
6. Requires the California Energy Commission (CEC) to review the effectiveness of the tax exemption in its annual Electric Vehicle Charging Assessment.
7. Goes into effect immediately as a tax levy.
   

Background

1. Tiers in the Greenhouse Gas Reduction Fund (GGRF). The GGRF was created in the 2012 budget (SB 1018) to use funds collected from Cap-and-Invest auctions to further the goals in the Global Warming Solutions Act of 2006 (AB 32). GGRF funds essential programs such as the Affordable Housing and Sustainable Communities Program, the Community Air Protection Program, wildfire and forest resilience, and the Safe and Affordable Drinking Water Program.^[1]

In the 2025 Cap-and-Invest reauthorization, the way in which GGRF funding was allocated changed from having several continuous allocations to a three-tier system (SB 840). Tier 1 allocations receive funding first, followed by Tier 2, and finally Tier 3. GGRF revenue is difficult to predict, creating the concern that Tier 3 programs with previously guaranteed funding will be underfunded in the coming years.^[2] Tier 3 programs include the programs listed above. Tier 1 expenditures include the Legislative Counsel Climate Bureau, certain state operations obligations, backfilling the cost of CalFire’s management of the State Responsibility Area, and the manufacturing tax exemption. Thus, when GGRF revenues are insufficient to fund all three tiers, any dollar spent on a Tier 1 allocation is a dollar less than goes towards affordable housing, wildfire and forest resilience, and clean air and water.

1. Manufacturing exemption costs. When Cap-and-Trade was reauthorized the first time in 2017, the bill that did so (AB 398) also made two changes to the manufacturers sales and use tax exemption. The first was expanding the eligibility of the tax exemption to include tangible personal property and buildings purchased for the generation, production, storage, and distribution of electric power. The second was backfilling an amount equal to the newly-included activities from GGRF.

Presently, the manufacturing exemption covers manufacturers, electric utilities, and agriculture. RTC 6377.1(g)(3)(A) mandates that GGRF backfills the general fund for electric utilities and agriculture. RTC 6377.1(g)(3)(D) allows for discretionary backfill from GGRF to the general fund for manufacturers.

AB 398 requires a report from the California Tax and Fee Administration (CTFA) on the lost revenues from the partial sales and use tax exemption for manufacturing and research and development equipment. CTFA found that in 2024, these tax exemptions cost the state $465 million in lost revenue. 67% of the lost revenue came from the manufacturing tax exemption, costing more than $312 million.^[3] 33% of the lost revenue came from electric utilities and agriculture, totaling approximately $153 million. The total backfilled from GGRF was estimated to be $100 to 159 million by the LAO.^1,2 Therefore, the GGRF backfill typically covers the electric utilities and agricultural exemption and may cover a small portion for manufactures. However, it is unknown how much discretionary funding is backfilled from GGRF for manufacturers.

SB 1424 adds the preparation of hydrogen and electricity to their retail form sold by gasoline stations to Subdivision (a). SB 1424 also adds buildings and foundations for manufacturing, preparing, and storing hydrogen fuel as well as the component parts to construct a hydrogen refueling station to Section 6377.1(b)(9)(iv) and (v). These expenditures may be funded through Tier 1 GGRF, but the extent to which these expenditures are funded through GGRF is discretionary and unknown.

1. California’s zero-emission vehicle goals. Governor Newsom’s Executive Order N-79-20 requires all passenger vehicles sold in the state to be zero emissions by 2035.^[4] The California Air Resources Board (CARB) set targets of zero emission vehicle (ZEV) sales approaching 2035, starting with 35% of sales in 2026 to 100% of sales in 2035.^[5] Since 2010 and as of 2026, California has sold 2.5 million electric vehicles, exceeding previous goals set by Governor Brown.^[6] However, rapid growth of ZEVs necessitates robust, accessible, and convenient charging (and, for hydrogen, refueling) infrastructure.
2. Challenges to ZEV infrastructure. ZEV charging and fueling poses numerous infrastructure challenges: new strain on the electric grid, accessibility of charging, and local permitting.^[7],[8] Barriers to home charging include not owning the residence, not owning a parking space, and high installation costs.^[9] High installation costs include not only the actual charger but updating the electric wiring of older homes which do not have the electrical capacity to charge a vehicle. The cost of EV chargers depends on its voltage; a level 1 EV charger plugs into the typical outlet. A level 2 EV charger is 240 volts, charges an EV more quickly, and requires specialized equipment ranging from $500 to $1,000 (not including home upgrades).^[10] Level 3 chargers are the fastest EV chargers and are typically installed for public use, rather than residential.

For public charging infrastructure, the Stanford Institute for Economic Policy Research (SIEPR) cites permitting and zoning as key barriers to the development of EV charging stations.⁸ Executive Order B-48-40 required the installation of 200 hydrogen fueling stations and 250,000 zero-emissions vehicle chargers by 2025. As of 2025, California has over 200,000 EV chargers in addition to 800,000 chargers in single family homes.^[11] Additionally, as of 2025, California has 61 hydrogen fueling stations, 50 of which are retail locations.^[12]

1. Hydrogen fuel cell vehicles. Hydrogen fuel cell vehicles (HFCVs) are a form of electric vehicle which uses hydrogen fuel. HFCVs use the same electric motor as a traditional electric vehicle (EV) but rather than charging the car directly with electricity, the car makes its electricity from hydrogen fuel. This is also in contrast to a hydrogen combustion vehicle, which uses the same mechanism as a traditional combustion engine but with hydrogen fuel rather than gasoline.

There are many benefits to HFCVs. HFCVs are zero-emission vehicles, releasing only water vapor as a byproduct. HFCVs are safer than hydrogen combustion vehicles and charge (or rather, refuel) faster than traditional EVs. However, the HFCV market is small, representing only 1.1% of ZEV car sales in 2023.^[13] In that year, there were only 12,000 hydrogen cars on the road and only two models available. Consumer options have not significantly increased; there are currently three models available. Despite low adoption, the California Energy Commission (CEC) has spent over $200 million on hydrogen fuel infrastructure.¹²

1. The creation of hydrogen fuel. There are two categories of methods to create hydrogen fuel: thermal processes and electrolytic processes. Thermal processes use high heat and steam to separate hydrogen molecules from hydrocarbons. These hydrocarbons can come from natural gas, diesel, renewable liquid fuels (such as ethanol), or biomass, among other sources. The process creates hydrogen and carbon dioxide (CO₂), a less potent but longer lasting greenhouse gas compared to methane (CH₄) in natural gas. Electrolytic processes separate water into oxygen and hydrogen, a cleaner but less common and more costly method.

Electric vehicles, either traditional or hydrogen fuel cell, are more efficient than combustion vehicles. Traditional EVs benefit from the efficiency gain and California’s electricity mix. Half of the electricity in California is derived from non-fossil sources (renewables and nuclear).^[14] In contrast, 95% of hydrogen fuel is produced using thermal processes with natural gas, a fossil fuel.^[15]

Comments

1. Purpose of Bill. According to the author, “Senate Bill 1424 builds on California’s commitment to clean energy by extending the state’s existing partial sales and use tax exemption to zero-emission vehicle fueling infrastructure. With transportation responsible for roughly half of California’s greenhouse gas emissions, accelerating the deployment of charging and hydrogen fueling stations is essential to meeting our climate and air quality goals. SB 1424 leverages an already successful, CDTFA-administered program to lower upfront costs for critical infrastructure, ensuring that private investment can scale more quickly and efficiently.

“At a time when federal commitment to clean transportation programs has diminished, California must act decisively to maintain momentum and protect its climate leadership. This bill provides a practical, near-term solution to help offset those losses and keep infrastructure deployment on track. By supporting both electric and hydrogen fueling technologies, SB 1424 takes a forward-looking, technology-neutral approach that maximizes innovation and market flexibility. Ultimately, SB 1424 strengthens California’s clean transportation future while reinforcing our commitment to economic competitiveness and environmental stewardship.”

1. Money isn’t the problem. By partially exempting ZEV charging and fueling purchases from the state sales tax, SB 1424 aims to incentivize the development of charging and fueling stations by private entities. However, SB 1424 does not address the largest barriers to the development of ZEV infrastructure. For traditional EVs, experts cite permitting and zoning as a larger barrier to charging infrastructure.

For hydrogen fueling, CEC has already given over $250 million without a significant increase in hydrogen fueling stations.^[16] The 2023 Annual Assessment of the Hydrogen Refueling Network in California from the CEC and CARB reported 66 hydrogen fueling stations achieved open retain status, increasing by 4 since the previous report. In 2025, CARB reported only 61 total stations with 50 of those available for retail. If so, the number of stations has decreased despite state funding.¹² The CEC report highlights that cost is one barrier: 50 stations lost a 2021 grant and were not built. However, the state missed that year’s hydrogen fueling station goal by more than 100 stations.

Other barriers that the CEC highlights include the cost of hydrogen and station reliability. In 2023, 12 of the 66 locations were offline for more than 30 days. The open stations operated only at 60% capacity due to equipment failures and supply chain constraints. For hydrogen fueling stations, funding is only half the battle.

1. An attempt at technology neutrality. As amended, SB 1424 includes traditional electric vehicles and charging stations in their goals and performance indicators. Yet, the bill does little to help the traditional electric vehicle market.
   1. First, traditional EVs are already a successful and growing market in California. Barriers in the current traditional EV market include a lack of federal or state tax credits on the high purchase cost and permitting at the local level for charging stations.
   2. Second, the sales tax exemption as described in the bill applies significantly more to the hydrogen fuel cell industry than the traditional EV industry. Section 6377.1(a)(6) refers to products purchased for “processing, altering or other preparation required for converting or conditioning hydrogen or electricity into its completed form.” It is not clear if such a product exists or is needed for electricity. This section, in fact, refers to several steps intrinsic to hydrogen fuel production. Therefore, this portion of the exception only benefits hydrogen fuel.

The exemptions listed in Sections 6377.1(b)(9)(A)(iv)(III) only refer to hydrogen and hydrogen refueling stations. The exemptions listed in 6377.1(b)(9)(v) apply to components needed for either hydrogen refueling or charging stations, but the components listed are only relevant to hydrogen refueling stations, such as: on-site storage tanks, cryogenic pumps, vaporizers, piping, etc. Components necessary for a charging station such as transformers or other electronic components are absent from this, admittedly, non-exhaustive list.

• 1. Thirdly, electricity generation is already in the manufacturing sales and use tax exemption (RTC § 6733.1(b)(9)(A)(iv)(II)).

The committee may wish to add components necessary for the development of traditional EV charging stations to subparagraph 6377.1(b)(9)(A).

1. Problem performance indicators. The goals and performance indicators in SB 1424 include traditional EVs and EV charging stations while doing little to help an already thriving market. It is unlikely that SB 1424 will have a major impact on the traditional EV ecosystem. Given there are already a number of state programs aimed at the actual barriers to EV adoption, including traditional EVs in the SB 1424 performance indicators could make the tax exemption appear more successful than it truly is. The SB 1424 tax exemption could double-count charging stations and traditional EV purchases that were already incentivized by other programs, such as Clean Cars 4 All or the California Electric Vehicle Infrastructure Project.^[17],[18] The author may wish to remove the number of ZEVs commercially available and sold from the performance indicators.
2. Sidestepping California’s Climate Goals. The transition to ZEVs is an essential step in GHG emissions reductions. Transportation accounts for 50% of the state’s GHG emissions.^[19] While hydrogen fuel can help California reduce transportation emissions, it does so by moving the emissions elsewhere rather than meaningfully reducing emissions. 95% of hydrogen fuel is derived from fossil fuels.

Additionally, SB 1424 doesn’t just exempt the construction of hydrogen fueling stations from the sales tax but purchases of products needed to process the fuel itself. SB 1424 exempts purchases for the purpose of processing, altering, preparation, converting, conditioning, and storing of hydrogen fuel. Processing is defined as the physical application of materials and labor to modify the characteristics of tangible personal property (in this case, hydrogen fuel). Additionally, the statue specifies that “raw materials shall be considered to have been introduced into the process when the raw materials are stored on the same premises where the qualified person’s manufacturing, processing, refining, fabricating, or recycling activity is conducted.”

SB 1424 adds gasoline stations to the list of qualified persons. Therefore, processing would refer to material and labor to modify hydrogen fuel once it is in the possession of a gasoline station (or other qualified person in RTC 6733.1(a)(8)(A)(i to iii)). Processing of hydrogen fuel elsewhere is not exempt. However, purchases to process hydrogen on-site would be. The US DOE states that most hydrogen fuel is produced at or new the facility where is it used. Therefore, SB 1424 may exempt the on-site production of hydrogen fuel.

Regardless of how the hydrogen fuel arrives at the station (whether made on site or delivered via pipeline or road), the station must compress and purify the hydrogen fuel.^[20] Purchases of machinery to compress and purify hydrogen fuel at the fueling station would be exempt on SB 1424. In summary, purchases to compress, purify, and storage of hydrogen fuel are exempted under SB 1424 and the processing (which could be production of) hydrogen fuel may be exempted when it occurs on-site.

SB 1424 exempts the construction of the stations selling hydrogen fuel and potentially the on-site production of the fuel. Ultimately, the hydrogen used in fuel cells still contributes to global GHG emissions; the emissions are just somewhere else. It would be irresponsible at best to fund hydrogen infrastructure from GGRF, especially without proper guardrails.

The committee may wish to consider:

• 1. Limiting this tax exemption to charging and hydrogen fueling station components; and
  2. Precluding this tax exemption from using revenue from GGRF.

Additionally, the author may wish to consider disallowing eligible hydrogen fueling stations from using hydrogen derived from fossil fuels.

1. Committee amendments. Staff recommends the committee adopt the bolded amendments contained in comments 3, 5(a), and 5(b).

Related/Prior Legislation

AB 32 (2006) authorizes CARB to use market-based compliance methods, such as Cap-and-Invest to achieve the state’s climate goals.

AB 118 (2007) Provides at least $15 million annually for hydrogen fueling stations through 2030 and requires an annual evaluation on the deployment of passenger fuel cell electric vehicles and needs for hydrogen station network expansion.

DOUBLE REFERRAL:

If this measure is approved by the Senate Environmental Quality Committee, the do pass as amended motion must include the action to re-refer the bill to the Senate Revenue and Tax Committee.

SOURCE:

California Hydrogen Coalition

SUPPORT:

OPPOSITION:

None received

-- END --

1. LAO (2025) Overview of New Updates to The Cap‑and‑Invest Program, https://lao.ca.gov/Publications/Report/5097 ↑

2. LAO (2026) Cap-and-Invest Expenditure Plan, https://lao.ca.gov/Publications/Report/5114 ↑

3. CDTFA (2025) AB 398 Annual Report ↑

4. Governor’s Office (2020) Governor Newsom Announces California Will Phase Out Gasoline-Powered Cars & Drastically Reduce Demand for Fossil Fuel in California’s Fight Against Climate Change, https://www.gov.ca.gov/2020/09/23/governor-newsom-announces-california-will-phase-out-gasoline-powered-cars-drastically-reduce-demand-for-fossil-fuel-in-californias-fight-against-climate-change/ ↑

5. CARB (2022) California moves to accelerate to 100% new zero-emission vehicle sales by 2035, https://ww2.arb.ca.gov/news/california-moves-accelerate-100-new-zero-emission-vehicle-sales-2035 ↑

6. Cohen-Petrow, C. (2026) California exceeds clean car goal despite declining federal support, Los Angelos Times. https://www.latimes.com/business/story/2026-01-20/california-exceeds-clean-car-goal-despite-declining-federal-support ↑

7. US Dept. of Transportation (2025) Implementation Challenges and Evolving Solutions for Rural Communities, https://www.transportation.gov/rural/ev/toolkit/ev-benefits-and-challenges/challenges-and-evolving-solutions ↑

8. Conrad, E, et al. (2024) Overcoming roadblocks to California’s public EV charging infrastructure, Stanford Institute for Economic Policy Research. https://siepr.stanford.edu/publications/policy-brief/overcoming-roadblocks-californias-public-ev-charging-infrastructure ↑

9.  Pezeshknejad, P., et al. (2026) Barriers to electric vehicle home charging and impacts on adoption, Transportation Research. https://www.sciencedirect.com/science/article/pii/S1361920926000556 ↑

10. Costco Auto Program (2025) The Cost of Charging an EV at Home, https://www.costcoauto.com/automotive_articles/ev/the-cost-of-charging-an-ev-at-home.aspx ↑

11. CEC (2025) California Exceeds 200,000 Electric Vehicle Chargers, https://www.energy.ca.gov/news/2025-09/california-exceeds-200000-electric-vehicle-chargers ↑

12. Hydrogen Fuel Cell Partnership (2025) California's 2025 Hydrogen Infrastructure Report: Key Findings for the Hydrogen Community, https://h2fcp.org/blog/californias-2025-hydrogen-infrastructure-report-key-findings-hydrogen-community ↑

13. Lazo, A. (2023) Hardly anyone owns a hydrogen car. California may pay up to $300 million for fuel stations anyway, Calmatters. https://calmatters.org/environment/2023/08/california-hydrogen-cars-funding/ ↑

14. US Energy Information Administration (2023) California: End-use energy consumption 2023, estimates. https://www.eia.gov/states/CA/overview ↑

15. US DOE, Hydrogen Fuel Basics, https://www.energy.gov/cmei/fuels/hydrogen-fuel-basics ↑

16. CEC & CARB (2023) Joint Agency Staff Report on Assembly Bill 8: 2023 Annual Assessment of the Hydrogen Refueling Network in California, CEC-600-2023-069 ↑

17. California New Car Dealers Association, EV Rebate Resources, https://www.cncda.org/ev-rebate-resources/ ↑

18. CEC, Electric Vehicles & Charging Infrastructure, https://www.energy.ca.gov/programs-and-topics/programs/clean-transportation-program/clean-transportation-funding-areas-0 ↑

19. CEC, Transforming Transportation, https://www.energy.ca.gov/about/core-responsibility-fact-sheets/transforming-transportation ↑

20. US DOE, Hydrogen Delivery, https://www.energy.gov/cmei/fuels/hydrogen-delivery ↑