AB 2377

AB2377:v97#DOCUMENT

Bill Start

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

Assembly Bill

No. 2377

An act to add and repeal Sections 17250.6 and 24349.3 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL'S DIGEST

AB 2377, as amended, Soria. Personal Income Tax Law and Corporation Tax Law: deductions: accelerated depreciation for new manufacturing operations.

The Personal Income Tax Law and the Corporation Tax Law, in conformity or modified conformity with federal income tax laws, allows various deductions in computing the income that is subject to the taxes imposed by those laws, including a deduction for depreciation of certain property put into the service of a trade or business.

This bill, for taxable years beginning on or after January 1, 2027, and before January 1, 2032, would provide for an accelerated depreciation deduction of 50% or 100%, as applicable, of the adjusted basis, as specified, of qualified property, as defined, put into service by a qualified taxpayer, as defined, during the taxable year. The bill would require a qualified taxpayer to place qualified property with an adjusted basis of at least $1,000,000 into service in the state during the taxable year in order to be eligible for the accelerated depreciation deduction. The bill would require the qualified taxpayer to certify under penalty of perjury that qualified property put into service during the taxable year will be primarily used in the state for at least 3 years. By expanding 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 that the tax expenditure will achieve, detailed performance indicators, and data collection requirements.

This bill would also 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.

Digest Key

Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: YES

Bill Text

The people of the State of California do enact as follows:

SECTION 1.

Section 17250.6 is added to the Revenue and Taxation Code, to read:

17250.6.

(a) (1) For taxable years beginning on or after January 1, 2027, and before January 1, 2032, qualified property placed in service in the state by a qualified taxpayer during the taxable year shall be eligible for a depreciation deduction equal to the following:

(A) Except as provided in subparagraph (B), 50 percent of the adjusted basis of the qualified property. For any subsequent taxable year, standard depreciation rules under this article shall apply to the qualified property.

(B) Notwithstanding subparagraph (A), qualified property placed in service in the state in a high-need area by a qualified taxpayer during the taxable year shall be eligible for a depreciation deduction equal to 100 percent of the adjusted basis of the qualified property.

(2) The adjusted basis of the qualified property giving rise to a deduction under this section shall be reduced by the amount of that deduction.

(b) For purposes of this section, the following definitions shall apply:

(1) “High-need area” means a census tract, city, or county with an annual unemployment rate or poverty rate of at least 150 percent of the statewide unemployment rate or poverty rate.

(2) “Qualified property” means any of the following:

(A) Machinery and equipment, including component parts and contrivances, such as belts, shafts, moving parts, and operating structures.

(B) Equipment or devices used or required to operate, control, regulate, or maintain the machinery, including, but not limited to, computers, data-processing equipment, and computer software, together with all repair and replacement parts with a useful life of one or more years therefor, whether purchased separately or in conjunction with a complete machine, and regardless of whether the machine or component parts are assembled by the qualified taxpayer or another party.

(C) Tangible personal property used in pollution control that meets standards established by this state or any local or regional governmental agency within this state.

(3) “Qualified taxpayer” means a taxpayer that is primarily engaged in a trade or business described in Codes 3111 to 3399, inclusive, 221111 to 221118, inclusive, 221122, or 541713 to 541715, inclusive, of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2022 edition.

(c) To be eligible for the accelerated depreciation deduction authorized by this section, a qualified taxpayer shall place qualified property with adjusted basis of at least one million dollars ($1,000,000) in service in the state during the taxable year.

(d) (1) A qualified taxpayer shall certify under penalty of perjury that qualified property placed in service during the taxable year shall be primarily used in the state for at least three years.

(2) The Franchise Tax Board shall prescribe any regulations necessary to recapture any benefit received by a taxpayer pursuant to this section where the qualified property is subsequently converted to a nonqualifying use or is primarily used out of state prior to the end of the three-year period prescribed by paragraph (1).

(e) (1) For purposes of satisfying Section 41, as it relates to the accelerated depreciation deductions allowed by this section and Section 24349.3, the Legislature finds and declares the following:

(A) The goals of the accelerated depreciation deductions are to improve early year cashflow for businesses, particularly those in economically distressed areas, reduce the effective cost of capital in the state, and strengthen California’s competitiveness for new investments in strategic industries.

(B) The performance indicators for the Legislature to use in determining if the accelerated depreciation deductions are achieving the stated goals shall be the following:

(i) The number of taxpayers claiming an accelerated depreciation deduction on qualified property.

(ii) The total dollar value of accelerated depreciation deductions taken on qualified property.

(2) The Franchise Tax Board, no later than March 1, 2029, and annually thereafter, shall submit a report to the Legislature, in compliance with Section 9795 of the Government Code, detailing the number of taxpayers allowed an accelerated depreciation deduction pursuant to this section and Section 24349.3 and the total dollar value of accelerated depreciation deductions taken on qualified property.

(f) This section shall remain operative only until January 1, 2032, and as of that date is repealed.

SEC. 2.

Section 24349.3 is added to the Revenue and Taxation Code, to read:

24349.3.

(a) (1) For taxable years beginning on or after January 1, 2027, and before January 1, 2032, qualified property placed in service in the state by a qualified taxpayer during the taxable year shall be eligible for a depreciation deduction equal to the following:

(A) Except as provided in subparagraph (B), 50 percent of the adjusted basis of the qualified property. For any subsequent taxable year, standard depreciation rules under this article shall apply to the qualified property.

(B) Notwithstanding subparagraph (A), qualified property placed in service in the state in a high-need area by a qualified taxpayer during the taxable year shall be eligible for a depreciation deduction equal to 100 percent of the adjusted basis of the qualified property.

(2) The adjusted basis of the qualified property giving rise to a deduction under this section shall be reduced by the amount of that deduction.

(b) For purposes of this section, the following definitions shall apply:

(1) “High-need area” means a census tract, city, or county with an annual unemployment rate or poverty rate of at least 150 percent of the statewide unemployment rate or poverty rate.

(2) “Qualified property” means any of the following:

(A) Machinery and equipment, including component parts and contrivances, such as belts, shafts, moving parts, and operating structures.

(B) Equipment or devices used or required to operate, control, regulate, or maintain the machinery, including, but not limited to, computers, data-processing equipment, and computer software, together with all repair and replacement parts with a useful life of one or more years therefor, whether purchased separately or in conjunction with a complete machine, and regardless of whether the machine or component parts are assembled by the qualified taxpayer or another party.

(C) Tangible personal property used in pollution control that meets standards established by this state or any local or regional governmental agency within this state.

(3) “Qualified taxpayer” means a taxpayer that is primarily engaged in a trade or business described in Codes 3111 to 3399, inclusive, 221111 to 221118, inclusive, 221122, or 541713 to 541715, inclusive, of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2022 edition.

(c) To be eligible for the accelerated depreciation deduction authorized by this section, a qualified taxpayer shall place qualified property with adjusted basis of at least one million dollars ($1,000,000) in service in the state during the taxable year.

(d) (1) A qualified taxpayer shall certify under penalty of perjury that qualified property placed in service during the taxable year shall be primarily used in the state for at least three years.

(2) The Franchise Tax Board shall prescribe any regulations necessary to recapture any benefit received by a taxpayer pursuant to this section where the qualified property is subsequently converted to a nonqualifying use or is primarily used out of state prior to the end of the three-year period prescribed by paragraph (1).

(e) This section shall remain operative only until January 1, 2032, and as of that date is repealed.

SEC. 3.

No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

SEC. 4.

This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.