California moved one step closer yesterday to waiving state income taxes on tax credit sale proceeds. 

The state assembly voted 79-0 to exempt proceeds from sales of, and direct cash payments from the IRS for, Inflation Reduction Act tax credits from state income taxes in conformity with the federal tax treatment of such amounts.  The state senate gave final approval as well, after having passed the same bill 38-0 in May.

The bill can be found here.

This state tax treatment would apply only during the period January 1, 2026 through December 31, 2030.

Governor Gavin Newsom has until October 12 to decide whether to sign it.

He has not taken a position yet on the measure.

The Franchise Tax Board estimates that it would reduce California tax collections by $280 million a year, but the revenue estimate does not factor in the more rapid phase out of tax credits and FEOC rules in the OBBBA, the tougher construction-start rules announced by the US Treasury on August 15 and a last-minute delay in the effective date for the change in California tax treatment.  The bill as originally proposed would have had California conform to the federal tax treatment retroactively to the start of 2023.