Cal. Rev. & Tax. Code § 24323

Any amount received as a rebate from a local water agency or supplier for any expenses the taxpayer paid or incurred for the purchase or installation of each water conservation water closet that meets the performance standards of the American National Standards Institute Standard A112.19.2 and uses no more than 1.6 gallons per flush, shall be treated as a refund or price adjustment of amounts payable to that water agency or supplier.