SACRAMENTO, Calif. (CN) — Getting a tip in the service industry isn’t guaranteed.
That’s one reason why California state Senator Rosilicie Ochoa Bogh pushed for passage of Senate Bill 17, which would exclude tips from the state’s taxes.
“Tips aren’t regular income,” the Yucaipa Republican told the Senate Revenue and Taxation Committee on Wednesday. “Tips are not guaranteed, they’re not consistent, they’re not enough to make ends meet.”
Calling the bill bipartisan, Ochoa Bogh said her bill would provide relief to millions of people. It would become effective Jan. 1, 2026.
The state Franchise Tax Board has estimated the bill would lead to tax revenue losses of some $330 million in fiscal year 2025-26 and $340 million in 2026-27.
Scott Kaufman, legislative director with the Howard Jarvis Taxpayers Association, argued that a vast majority of workers who rely on tips are women, younger than salaried workers and more likely to be single parents.
“The over-representation of these groups makes the need for this bill clear,” Kaufman said.
State Senator Suzette Martinez Valladares, a Santa Clarita Republican and committee vice chair, praised the legislation. Noting she once worked as a bartender, Valladares said she relied on tips to pay rent.
She also noted that both presidential candidates supported some form of a tax exemption on tips during their campaigns.
“This bill will go a long way to impact the people that need the help the most,” she added.
The bill passed out of committee and now proceeds to the Senate Labor, Public Employment and Retirement Committee.
A similar bill winding through the Legislature had its first hearing before the Assembly Revenue and Taxation Committee on Monday. Assembly Bill 1443 received no vote on that day, but was instead placed on the committee’s suspense file.
Bills on that file will return to the committee at a later date for a vote.
The bill’s author — Assemblymember Leticia Castillo, a Corona Republican — argued that people who rely on tips for revenue work long hours.
“Every time they get a tip, the state takes a cut,” she added.
Matt Sutton, with the California Restaurant Association, told the committee that the bill addresses the state’s affordability crisis. He added that restaurants continue to face difficulties after the Covid-19 pandemic. Additionally, restaurants are seeing reduced business and foot traffic since the Los Angeles wildfires early this year.
“The affordability crisis is real for restaurants,” Sutton said.
Castillo’s bill has a sunset date. It would become effective Jan. 1, 2026, and expire on Jan. 1, 2031.
Analysts have identified potential issues with both bills.
Ochoa Bogh’s bill has a broad definition of “tips.” That could lead people to change how they report their income. For example, an attorney preparing a will could charge $1,000, with only $1 of the cost being a wage and the remainder a tip.
An analyst made a similar argument about Castillo’s bill, writing that it could incentivize people to make tipping more commonplace. That could mean estimated reductions in state tax revenue would grow much larger than currently anticipated.
The analysis also questioned the impact the legislation would have. It’s estimated that under 5% of workers who earn under $25 an hour get tips. That means about 95% of low- and middle-wage employees get no tips and wouldn’t see any benefit from the bill.
New holidays proposed
Two unrelated bills that would create new state holidays also appeared Wednesday before the Assembly Public Employment and Retirement Committee.
Assembly Bill 989 — introduced by Assemblymember James Ramos, a Highland Democrat — would make the fourth Friday in September Native American Day, a paid state holiday.
Committee members praised the legislation.
“I am so proud to be here and be a part of this history,” said Assemblymember Tina McKinnor, a Hawthorne Democrat and committee chair.
Assembly Bill 268, by Democratic Assemblymember Ash Kalra, of San Jose, would add Diwali as a state holiday. However, it wouldn’t be a paid day off.
Diwali, which occurs in late October or November each year, is a religious observance celebrated by millions of Hindus, Sikhs and Jains.
Both bills passed out of committee and will proceed to the Assembly Appropriations Committee.