California will no longer tax cash grants that the US Treasury pays on new renewable energy projects.

The grants are 30% of the project cost and are paid 60 days after a wind, solar, geothermal, biomass or other renewable energy project is first placed in service. They are only paid on projects that are completed in 2009 or 2010 or that start construction in 2009 or 2010.

The State Franchise Tax Board had said that grants paid on such projects in California are subject to franchise taxes at an 8.84% rate. Governor Schwarzenegger signed a bill to waive the taxes in early April.

The bill is not effective until January 1, 2011, but will be retroactive to 2009 and 2010 once it takes effect. The Franchise Tax Board said in the meantime that it does not plan to collect taxes on grants paid in 2009 and 2010.