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California State Assembly Chamber. (Photo: Kevin Sanders for California Globe)

What Is a Section 2230 Waiver in California Legislation?

By Chris Micheli, April 2, 2022 7:40 am

When readers are looking at bills that affect the California Revenue and Taxation Code, they might come across the following provision that would be near the end of a bill:

Notwithstanding Section 2230 of the Revenue and Taxation Code, no appropriation is made by this act and the state shall not reimburse any local agency for any sales and use tax revenues lost by it under this act.

What is the purpose of this language? Revenue and Taxation Code Section 2230 requires the State of California to annually reimburse cities and counties for the net loss of revenue from each statute enacted after January 1, 1973, which provides for a sales or use tax exemption. As a result, the language above would be included in a bill providing a partial or full exemption from the imposition of the state’s sales or use tax. In other words, readers would not find this language in a bill affecting the property tax, personal income tax, corporate tax, etc.

Pursuant to Section 2230, the reimbursement must be made when funds have been appropriated by the Legislature. Moreover, 20% of the local net loss has to be distributed to the counties in the same ratio as the total amount of sales and use taxes collected in each county is to the whole. And, 80% of the local net loss must be distributed to cities and counties in the same ratio as provided for the distribution of moneys from the Cigarette Tax Fund.

So, when a bill proposes a partial or full exemption from the state sales or use tax, the bill can remain silent, in which case the Legislature must reimburse local governments for the lost revenues attributable to that exemption. On the other hand, if the Legislature does not want to reimburse local governments for their loss of revenue, then the above disclaimer language must be included in the bill.

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