Why Do California Tax Bills Contain ‘Section 41’ Provisions?

If you have reviewed a number of bills in the California Legislature that add new provisions to the Revenue and Taxation Code, you may have noticed references to Section 41. What is “Section 41” and why do we often find it mentioned in tax bills?

Revenue and Taxation Code Section 41 requires any bill introduced after January 1, 2020 to contain specified information if the bill would authorize a new tax expenditure (defined as “a credit, deduction, exclusion, exemption, or any other tax benefit as provided for by the state”). These new tax expenditures have to fall under the Personal Income Tax Law, Corporation Tax Law, or the Sales Tax Law (creating an exemption).

Section 41 requires the bill to contain:

• Specific goals, purposes, and objectives that the tax expenditure will achieve.

• Detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets the goals, purposes, and objectives stated in the bill.

• Data collection requirements to enable the Legislature to determine whether the tax expenditure is meeting, failing to meet, or exceeding those specific goals, purposes, and objectives.

When a bill is introduced, sometimes the measure simply states that it is the intent of the Legislature to comply with Section 41. In other instances, more detailed provisions are contained in the introduced version. However, by the time the bill reaches the Governor’s Desk, it will need to comply with Section 41 and contain the required information.

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