Assembly Standing Committee on Revenue and Taxation

Analysis pursuant to our Committee rules, bills with fiscal impact of plus or -150,000 will be referred to our suspense file, which will be taken up at our hearing on July 1. Please note that file item one, SB 726, by Senator Archuleta, has been pulled.

Finally, Assembly Member Haney will be joining us as a substitute for Assembly Member Gipson for today's hearing only. Do we have a quorum? Okay, so we will start as a Subcommitee on our first. The first measure on our agenda is file item two, SB 974 by Senator Grove. Senator, please begin whenever you are ready.

Thank you, Madam Chair and Members, today I'm here to present SB 974, which makes technical changes in the Lithium Extraction Excise Fund. Lithium extraction is an important process of production of batteries in products like cell phones, laptops, and electric vehicles.

However, because of its potentially negative environmental impacts of this extraction sites, the Legislature created the Lithium Extraction Excise Fund, which imposes a tax on every metric ton of lithium produced. Under existing law, 80% of that revenue fund goes to counties that provide or that produce lithium, and 20% goes to the Salton Sea Lithium Fund.

These funds are distributed among the affected communities and used to mitigate the effects of lithium mining. Although the allocation system to the Salton Sea region made sense when Imperial County in the State of California was the only producer of lithium, other counties are now exploring and have begun lithium production.

For example, the Rio Tinto Mine in Boron is almost 200 miles away from the Salton Sea. SB 974 makes no changes to the funding structure of Imperial County, and all revenue generated in Imperial County will stay in that county.

The bill simply updates the tax allocation that other counties for other counties so that they're able to keep their fair share of the fund and to repurpose those dollars back into the extraction community in which the lithium has been mined.

With me here to testify is Dylan Elliott on behalf of Kern County, and I respectfully ask for your aye vote.

Thank you, Madam Chair Members. Dylan Elliott on behalf of the Kern County Board of Supervisors, sponsors of SB 974, which would update the provisions set out in the Lithium Extraction Excise Fund by ensuring that counties begin producing lithium, will be able to direct their allocation of the lithium funds towards their most directly affected communities.

As Senator Grove shared currently, a lithium extraction excise tax is imposed upon every metric ton of lithium produced. This money goes into the lithium fund, 80% of which goes to counties proportionate to the amounts collected, and 20% to the Salton Sea Lithium Fund.

This is because, at the time of establishment, lithium production was primarily expected to take place in the Imperial Valley, specifically around the Salton Sea. As other counties, Kern County, for example, have begun to explore lithium production, current law would require 20% of their contribution to the lithium fund to go towards the Salton Sea, rather than back into the community impacted by that extraction or potentially.

Specific to Kern County, lithium production is set to begin in the town of Boron, and all necessary permitting for that mine has been received.

With the enactment of SB 974, the full portion of the revenue received from this mine could be put back into the affected community rather than the 80% under existing law. For this reason, the Kern County Board of Supervisors is proud to support and sponsor SB 974. Respectfully ask your aye vote. Happy to answer any questions. Thank you.

All right, thank you. Any other witnesses in support?

Nicole Wordelman on behalf of San Bernardino County in support.

Good afternoon. Alejandro Solis, on behalf of community groups out of Lithium Valley, Comite Civico del Valley and Los Amigos de la Comunidad, in support. Thank you.

Thank you. Any witnesses in opposition? Questions from the Committee? Can you? When is the extraction scheduled to begin?

So, Boron has got all their affected permits that are needed to be able to start the extraction. And I knew they were doing exploration and stuff now on the deeper parts of the mine.

Okay, so it's actually mined. It's different than what's going on in the Salton Sea.

It's mined, but it's a byproduct of what actually comes. It's a byproduct. So, when they produce the product that they do now, it's. They separate out the lithium from it. It's a byproduct of what's being mined.

And is it expected to be high volume? I mean, this was unexpected, I assume, but now our.

It was unexpected. And then, just so you know, that we did work with Senator Padilla, and then my county planning director, Lorelai Oviat, worked with the self, with that area's planning director, and the supervisors down there to help with them with some stuff.

And they've been very generous, and they understand, just like, not only with Kern County, but other counties, counties that have the potential of mining lithium to allow those extraction sites, because there's the mine is a company town, and schools, taxes, things like that, would be limited if all these resources went just down to the Salton Sea.

Very exciting development for Kern County. The potential is really unlimited. So, obviously, we only have a subcommittee right now, but if you would like to close.

Just respectfully ask your aye vote for fairness. We'll be extracting the lithium, and our community would like to be able to, like I said, use those resources to benefit the town where the extraction is taking place.

All right, as soon as, again, as soon as we have a quorum, we'll take a vote.

Thank you, Madam Chair.

Thank you. Thank you. All right, we have Senator Portantino, and this is file item five. You ran in ahead of your colleagues. Good for you. SB 1192, whenever you are ready, you may begin.

Thank you, Madam Chair and Committee Members. I'd like to begin by accepting the proposed amendments outlined in the analysis and thank your staff, even Mister Ruff, for all of his help in getting this to where it is. SB 1192 extends the pass-through entity tax provision of the Small Business Relief Act.

It gives California an opportunity to do something it does so well, get ahead of a problem. And the Salt Workaround was enacted as part of the 2021 Budget, effective for tax years beginning on or after January 1, 2021, until December 31st, 2025. The sunset date coincides with the scheduled expiration of the federal salt cap.

As a reminder, under the framework in California, eligible businesses, entities can elect to pay on behalf of their owners or then receive a federal tax deduction. And so, with me, I have John Ross and others to speak in favor of this important tax fix to benefit our taxpayers. Mister Ross and Jason, who's first? You're first.

Jason Fox with the California Society of Certified Public Accountants. The pass-through any tax or PTET has been a win-win tax policy by offering substantial relief for numerous small businesses without any discernible negative impact on state revenue.

However, when it originally established, the PTET, provisions were set to expire at the same time as the existing federal limits on state and local tax deductions.

This approaching sunset date has created uncertainty for taxpayers and tax practitioners who need to make important tax and business decisions in 24 and 25, including whether to opt in for the PTE election, how to plan for the use of their credits, how these decisions may impact other related tax matters.

Further, this creates uncertainty for tax agencies working to manage resources for effectively administering the PTET provisions.

So, while it's uncertain when or how Congress may address the federal limits, California, as the Senator noted, can be proactive and take action now to provide taxpayers, tax practitioners, and tax agencies with some clarity and guidance on what California is going to do related to the PTET provisions.

Just as importantly, it ensures that the PTET will remain a beneficial option for countless tax fairs in California and beyond. So, with that, we would urge support for SB 1192.

Good afternoon, Chair Irwin and Members. John Ross, on behalf of PWC, EY, KPMG, Deloitte, and Grant Thornton, national accounting firms. I think we've covered almost all of it, but just to be quick and easy, one problem that'll sort of bring this into focus, Congress will probably act near the end of '25.

If this law has already expired, you would be rushing in 2026 to try and extend it if necessary. And taxpayers have to make quarterly estimated payments, probably in the first quarter of '26 and the second doing that in hopes or as insurance that California will act.

So, it just creates a situation where taxpayers could be paying money in that they'll then be getting back, and it confuses the process for the FTP. So, we think this is a really smart and prudent thing to do. And that's for your aye vote.

All right, thank you. Any other witnesses in support?

Chair Members Dean Grafilo, with Capital Advocacy here on behalf of the California Life Sciences, in support of SB 1192. Thank you.

Very good. Any witnesses in opposition? All right, I think we have a quorum. Can we please have?

[Roll call] We have quorum.

All right. Did I already ask questions of the Committee? I think they were. All right, so we have a motion by Assembly Member Grayson, a second by Assembly Member Haney. Mister Portantino, would you like to close?

Just appreciate the work on this important tax fix and respectfully ask for an aye vote.

All right. Shall we do the vote?

On Item Number Five: SB 1192, the motion is do pass as amended to Appropriations. [Roll Call]. Four to zero. Passes.

Four to zero, and that bill is out.

We can go back to--

All right, we have--why don't we--Senator. Senator Wilk is File Item Three. Why don't you come up? We are first going to vote on Senator Grove's bill. So that was, motion by Assembly Member Grayson and second by Assembly Member Ta. Ms. Highland, please call the roll. Oh, and the motion is do pass to Appropriations.

On Item Number Two: SB 974, the motion is do pass to Appropriations. [Roll Call]. That bill passes; four to zero.

That bill is out, four to zero, and we will hold the roll open. And now we're on File Item Three: Senate Bill 1004 by Senator Wilk. Senator, please begin.

Thank you, Madam Chair and Committee Members, for the opportunity to present SB 1004, which would exclude from taxable income settlement payments made in connection with any wildfire that occurs in California. I'd first like to start by accepting the committee's suggested amendments to make the bill prospective, as well as including a five-year sunset.

The Legislature has decided multiple times that these settlements should not be taxed. In 2022, SB 1246 and AB 1249 were signed into law making settlements related to the Thomas Fire, the Woolsey Fire, the Butte Fire, the North Bay Fires, and the Camp Fire tax exempt.

Similarly, SB 370 and SB 542 propose to do the same for the Kincade Fire and the Zogg Fire and pass the Senate unanimously in 2023. In 2020, the Bobcat Fire, which burned over 115,000 acres in and around my district--actually, more of it's in Senator Portantino's district than my district, but Senator Portantino's, Senator Ochoa Bogh, and mine--was determined to be caused by a tree coming in contact with power lines.

Unfortunately, any settlements my constituents receive related to this fire will not be tax-free because the Bobcat Fire was not included in the past legislative efforts. All wildfire victims should be afforded the same tax relief as those affected by these previously mentioned fires. SB 1004 will ensure that all wildfire settlements are tax-free, regardless of where you live. And I know, my understanding is this bill is going to be referred to the suspense file, but when appropriate, I'd love to ask for an aye vote.

All right. Thank you very much. Senator, do you have any witnesses in support?

It's so righteous a cause, I didn't feel like I needed to bring somebody out--

Any witnesses? Any witnesses in opposition? Everybody knows it's a righteous bill, according to Senator Wilk. Do we have questions from the committee? Yeah, we--this, this is such a common sense thing. It seems so silly to come every time for these, for these bills, but we had a similar bill last year, which I think it was killed in Appropriations, so good luck to you. Hopefully, we will get it passed this year. And, Senator Wilk, would you like to close?

Respectfully ask for your aye vote.

Without objection, this will be moved to our suspense file. Thank you very much.

Thank you.

And can you tell your colleagues to hurry up? We're ready for them.

Are you talking to me? They should all be here. They should all be here. We've been out for an hour.

Yeah. Oh, that's not good.

Who do I need to text?

Bradford.

He works on his own clock. I can't help you there.

Thank you, Senator. Thank you for being on time, both of you. We're moving through quickly. We appreciate it. Yeah. This is mostly a cutting tax. A tax credit committee. Would you.

This is the fun committee.

We're not cutting taxes.

All right, Senator Alvarado-Gil, you are up. All right, this is file item six, SB 1261. You may begin.

Thank you, Madam Chair and committee members. We're here to present Senate Bill 1261, which would adjust the percentage of the Department of Food and Agricultural's budget that is dedicated to the Fairs and Exposition Fund from three-fourths of 1% to 5%.

For more than 70 years, the source of state funding for California affairs has been dependent on horse racing license fees. In 2009, the Legislature recognized the need for the new source of funding for the continuation affairs and thus continuously appropriated 32 million from the state's general fund to be paid into the Fairs and Exposition Fund.

However, the 2011 to 2012 Budget Act eliminated those general fund contributions requiring fairs to be self-sufficient. To address that problem, the Legislature enacted AB 1499 in 2017, which directed the governor's budget proposal to include three-fourths of 1% of the amount of revenue from the sales and use taxes generated on the fairgrounds, those to be allocated to fairs.

The Fairs and Exposition Fund supports projects at fairs that address deferred maintenance, emergency services, protection of fair property, and the health and safety of our visitors. Without an adjusted percentage dedicated to the Fairs and Exposition Fund, California fairs run the risk of not receiving the necessary funding that they need. Here to testify with me today in support is Norm Town of the Western Fairs Association. Welcome, Norm.

Thank you, Senator. Madam Chair and members, Norm Town, representing Western Fairs Association and the California Fair Alliance in support of the bill. We are the sponsors. It's a very important bill for the fair industry. We thank you, Senator, for carrying this bill for us. And the committee analysis is right on point. I'll avoid being repetitive. I'm happy to answer any questions you might have. Thank you.

Thank you very much. Do we have any other witnesses in support in the room?

Good afternoon, I'm Eric Lawyer on behalf of the California State Association of Counties in support. Thank you.

Thank you. Any primary witnesses in opposition? Any witnesses in opposition? Questions from the committee. All right, Miss. Well, obviously this bill is going to be referred to our suspense file, but if you would like, please close.

Yes, if I could just close. What does this really look like in practicality? So I do visit by fairgrounds very often. The last visit was to the Calaveras fairgrounds in San Andreas. Due to the arrow fire, we had nearly 6000 acres burned and it became the base camp for CAL FIRE. And we were very fortunate that we had working bathrooms, that we had shelters for over 100 livestock that were displaced. Members of my community that were displaced that had moved into mobile homes and mobile units had a safe place on California State grounds in order to take respite during this time.

Thankfully, we had no loss of life, very small amount of loss of property. But this is a place the fairgrounds have become, particularly in the rural communities, a place to congregate, not only for celebration in community but in very often times of natural disaster. So I hope that the committee will see this as a benefit to California State. Thank you.

Thank you very much for bringing this bill forward. And I know with our Ventura County fairgrounds, they have been used also as a base for the Thomas Fire, and right now they're hosting the X Games. So there is a lot of benefits to our fairgrounds, and without objection, this bill is going to be referred to our suspense file.

Thank you so much, Madam Chair. Thank you, committee.

All right, Mr. Bradford, we are ready for you.

We are ready to throw down.

This is going to be our last item, SB 1059 by Senator Bradford. And you may begin whenever you are ready.

Thank you, Madam Chair. This measure will assist legal cannabis industries by alleviating some of the tremendous tax burdens that's placed on this industry. We all know about the tax on tax. This bill would eliminate the local government's collection of tax on a tax. The California cannabis market is in crisis as we all know.

Just last week, the City of Long Beach implemented a law that reduced the number of, the amount of taxes I should say because this industry is struggling. High taxes, excessive regulatory hurdles, and various challenges that cannabis business face have done little to help the legal cannabis market succeed the way the voters had intended when Prop 64 was passed.

We have the largest market of cannabis in the world by total retail sales. But when you look at the number of cannabis products sold, California ranks behind other West Coast states and sells fewer cannabis products than Michigan, despite having one quarter of our state's population. Hundreds of stores across the state are on the verge of failure. Many in my district and throughout LA are dying on the vine every day.

As of December of last year, 15% of our state's cannabis operators are in default of their sales tax obligations, and their troubles will only be compounded by a 50% penalty if they miss their sales tax payments.

Finally, many of the industries are preparing for an increase of cannabis excise tax next year to make up for those losses in revenues otherwise generated by the cultivation tax. These taxes are burdensome, so much so that the city of Long Beach, again, as I stated, is reducing their local taxes for cannabis business to save the industry.

In some jurisdictions, like the city of Los Angeles' cannabis taxes, or fees, are calculated after the state excise tax is applied. This calculation method is unfair to consumers and a disadvantaged licensed retailers that continue to struggle against the thriving illicit market. This is an only measure this year that addresses a tax on tax.

We've seen it with SB 911, I should say, by Seyarto and AGR 15, by our chair. SB 10 59, I should say, addresses these issues and ensures taxes are based on the actual goods being sold. This bill alone will not solve the issues of our cannabis market, but it will provide the needed clarity and relief.

With me today to provide testimony is Jerred Kiloh with the United Cannabis Business Association, and Dale Gieringer with California NORML. This bill has received bipartisan support and I respectfully ask for your aye vote.

Your witness.

Well, thank you, Madam Chair, Members of the Committee. Senator said it very well. I'd just like to say this bill also, I think, clears up some confusion about how these taxes work. There are at least 36 cities and counties, by my account, that have gross receipts tax on cannabis.

The way this is collected really varies from place to place. As we know, in Los Angeles, they include the excise tax in their tax base, and then they put their tax on top of it.

I have here a receipt from a county up North where they actually include the sales tax as well as the excise tax and throw that in. We think this is really excessive in an overtaxed industry. I just like to point out that the tax on a joint of marijuana at the present time is around $1 per joint.

The excise tax on a glass of wine is 1 cent, beer is two and a half cents, and a shot of liquor is four or eight cents. So we hope you'll bring a small modicum of tax relief to this much unburdened industry and help undercut the illegal market. So we respectfully urge your aye vote.

Thank you.

Thank you. Jerred Kiloh. Hearing a due pass for cannabis bill and tax and rev feels very, I don't know, I'm without words at this particular point. So thank you for that. I'll keep it shorter than previous. Hearing due pass makes me feel confident. I think where we're at right now is we've got, like, 37% more retail licenses since 2022, and yet we still have declining revenue. So this isn't about an access issue.

If we are looking for what is the reason for why cannabis and cannabis products are being purchased through either illegal sources or through sources like hemp stores that are selling cannabis under the guise of hemp, we're seeing those, those industries grow almost exponentially.

We've seen almost a, you know, about a five fold increase in hemp sales in California in a couple of years. And now all we're really trying to do is understand where CDTFA's information is coming through. Even through their website, it's hard to get a follow through of what actual cannabis is being sold versus total revenue.

And even then, we're looking at the debt sometimes brought in from these other cannabis businesses, sometimes reported almost $754 million in cannabis debt due to unpaid taxes.

I'm not sure if CDTFA actually reports that undue taxes that haven't been collected yet as debt in their reporting, but if they did, I think we'd start to see that there is actually more calculation of tax due than there is collection of tax.

And that might be a better indicator of where the health of this industry actually is sitting as of today. So with that, we have a $8 billion valuation of the illicit industry, a $2 billion of the illegal hemp industry, and we've got a $4 billion estimation on cannabis.

So I'm hoping that cannabis can find its footing and get a firmer foothold on being able to grow like some of the other illicit, non-taxed entities for cannabis are. So request for your aye vote. Thank you.

Thank you. Other witnesses in support?

Nicole Wordelman, on behalf of the California Cannabis Industry Association, in support.

Good afternoon, Madam Chair, Members of the Committee. Sam Rodriguez, on behalf of Good Farmers Great Neighbors based in Santa Barbara County. I want to commend the Senator for his efforts. We have the City of Lompoc who entertained the idea of adding the excise tax on top of sales tax. So thank you for your efforts.

Sarah Pollo Moo with the California Retailers Association, in support.

Good afternoon. Kristin Heidelbach, UFCW Western States Council, in support.

Sean Topaking, with the Cannabis Distribution Association, in support.

Madam Chair, Members. George Miller on behalf of WeedMaps, in support.

Thank you. Any witnesses in opposition? Any questions or comments from the Committee? Assemblymember Haney.

Thank you. Thank you. I appreciate it. This is a great bill. Thank you so much for your leadership in this area generally. Senator, I think you've really focused in on what we need to do to be able to support our legal cannabis industry, which really is, I think, overtaxed and over-regulated in ways that are really arbitrary and wrong and misguided.

You've been able to put forward bills that I think will help to fix that also. This is a great analysis. This is really-- You're right, this is the fun Committee. I can see there's, like, jokes built in here and everything.

We take it very seriously.

No, it is. It's good. It's very well done. I just wanted to ask you if I could be a co-author as well of the bill, and excited to vote for this and--

Would love to add you.

Thanks for having me on the Committee.

All right, anybody else? So, obviously, our legal industry does need help, and I think bringing up transparency from CDTFA is. I think that's important to focus on. I also think that we need to have more enforcement of the illicit market, but hopefully that's going to be coming soon. So, Senator Bradford, would you like to close?

This is a straight, common sense measure, helping to achieve the goals that the voters hope for when we pass Prop 64 eight years ago. And I respectfully ask for your aye vote.

All right. The motion is due pass to the Committee on Business and Professions. That motion was moved by Assemblymember Grayson, second by Assemblymember Haney. Ms. Hyland, please call the roll.

On item number four, SB 1015. The motion is due pass to Business and Professions. [Roll call]. That bill's on call.

That bill is on call. We need one more person, one more vote. All right, thank you. Now we need to call.

You're done.

Yeah. You are--yes. Yes. We just need a copy. Thank you very much. We need your--there are three members, but only one I--

All right. You're the one we need. Ms. Highland, do you want to go through--

Yes. Item Number One was pulled by the author. Item Number Two: SB 974 by Ms. Grove has passed. [Roll Call]. Item Number Three has gone to suspense. Item Number Four is on call, SB 1059 by Mr. Senator Bradford, which is a do pass to Business and Professions. [Roll Call]. That bill is passed.

That bill is out; four to zero.

Item Number Five: SB 1192 by Senator Portantino has passed. The motion was do pass as amended to Appropriations. [Roll Call]. And Item Number Six is going to suspense.

Thank you very much.

You're free to leave the building.

All right, we have our last member. Ms. Bains. Okay.

Item Number One was pulled by the author. Our Item Number Two has passed, SB 974 by Ms. Grove. It was a do pass to Appropriations. [Roll Call]. Item Number Three is going to suspense. Item Number Four: SB 1059 by Senator Bradford has passed. It's a do pass to Business and Professions. [Roll Call]. Item Number Five: SB 1192 by Senator Portantino. That bill has passed. It's a do pass as amended to Appropriations. [Roll Call]. And Item Number Six is going to suspense.

All right. Thank you very much. And with that, our committee is adjourned.