BILL ANALYSIS
SB 10
Page 1
Date of Hearing: July 6, 2009
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
SB 10 (Leno) - As Amended: May 28, 2009
Majority vote. Fiscal committee.
SENATE VOTE : 21-16
SUBJECT : Voter-approved local assessment: vehicles.
SUMMARY : Authorizes counties and the City and County of San
Francisco to impose a voter-approved local assessment for
specified vehicles. Specifically, this bill :
1)Authorizes a county board of supervisors, by ordinance, to
impose a voter-approved local assessment (vehicle assessment)
for general revenue purposes, if all of the following
conditions are satisfied:
a) The ordinance complies with requirements of existing law
pertaining to vote thresholds that must be attained before
a local government or district can impose either special or
general taxes;
b) The ordinance is approved by a two-thirds vote of the
board of supervisors;
c) The ordinance proposing the "vehicle assessment" is
approved by a majority vote of the voters voting on the
ordinance; and,
d) The board of supervisors transmits to the Department of
Motor Vehicles (DMV) and the Franchise Tax Board (FTB) a
certified copy of the ordinance imposing the vehicle
assessment immediately after the results of the election by
the voters are certified.
2)Requires any ordinance imposing a "vehicle assessment" to
include the following specific provisions:
a) The vehicle assessment is to be imposed on residents of
the county, or city and county, for the privilege of
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operating a vehicle or trailer coach on public highways in
the county or city and county;
b) The amount of the vehicle assessment is to be set at the
difference between 2% of the market value of a vehicle or
trailer and the current vehicle license fee (VLF) and
cannot exceed 2% of a vehicle's market value;
c) Any adjustment to the rate required to be made because
of a change in the rate of the VLF cannot take effect
until the first day of the fiscal year (FY) following the
one in which the change became operative; and,
d) The county, or city and county, contracts with the
California DMV to administer and collect the vehicle
assessment.
3)Provides that a voter-approved ordinance imposing a vehicle
assessment, if consistent with conditions set forth in this
bill, that was approved by the board of supervisors and the
voters prior to this bill becoming effective is enforceable,
if both of the following apply:
a) The assessment is not imposed until at least 90 days
after the effective date of this bill.
b) The board of supervisors ratifies adoption of the
ordinance after the effective date of this bill and prior
to the vehicle assessment being levied.
4)Authorizes a county, or city and county, to impose a vehicle
assessment at a lower rate than otherwise provided for in this
bill for low-emission vehicles.
5)Prescribes the following responsibilities for DMV in
administering a vehicle assessment:
a) To collect the voter-approved vehicle assessment
pursuant to a contract with the county or the city and
county.
b) To deduct its costs in administering the voter-approved
local assessment from the collected assessments.
c) To transmit to the State Controller for deposit in the
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General Fund (GF) the amount necessary to compensate the GF
for the loss incurred in the prior year as the result of
the deductions taken by the taxpayers for the vehicle
assessments under the Personal Income Tax (PIT) Law
[Revenue and Taxation Code Part 10 (commencing with Section
17001) and the Corporation Tax Law (R&TC Part 11
(commencing with Section 23001)].
d) To transmit revenues from the assessments to the county,
or the city and county, as promptly as feasible.
e) To report quarterly to the Franchise Tax Board (FTB), at
a time and in a manner prescribed by the FTB, the aggregate
amount of the vehicle assessments paid by a person or an
entity in the prior calendar quarter.
6)Provides that if a county, or city and county, imposes a
vehicle assessment and, as a result, experiences a reduction
in revenue, the state is not liable for making the county, or
city and county, whole.
7)Requires the FTB to report to DMV an estimate of the total
amount of revenue lost to the state in the prior year
resulting from deductions taken under the PIT Law for taxes
paid as a result of the vehicle assessment having been
imposed.
8)Requires DMV to withhold from vehicle assessment revenues an
amount equal to revenues lost to the state in the prior year
because of PIT Law deductions, as reported by the FTB, and to
deposit that amount in the GF.
EXISTING LAW :
1)Imposes a VLF, which is in lieu of a personal property tax on
California motor vehicles, at a rate based on the taxable
value of the vehicle. The taxable value of a vehicle is
established by the purchase price of the vehicle, depreciated
annually according to a statutory schedule. Prior to May 19,
2009, the VLF tax rate was set at 0.65% of the value of a
vehicle. For vehicles registered between May 19, 2009 and
June 30, 2011, the VLF rate is temporarily increased to 1.15%
[ABx3 3 (Evans), Chapter 18, Statutes of 2009]. The revenues
from the portion of the rate increase from 0.65% to one
percent are deposited in the state GF, whereas revenues from
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the additional increase of 0.15% are dedicated to specific
local public safety programs.
2)Provides, under Article XI, Section 15 of the California
Constitution, that VLFs collected by the state are allocated
to cities, counties, and cities and counties, less the costs
of collection and any refunds.
3)Authorizes cities, counties, and special districts to impose a
general tax for general governmental purposes with the
approval of a majority of the voters.
4)Authorizes cities, counties, and special districts to impose a
special tax for specified purposes with the approval of
two-thirds of the voters.
5)Allows taxpayers to deduct the VLF amount on their state
income tax returns as an itemized deduction. VLF is also
deductible for federal income tax purposes.
FISCAL EFFECT : Assuming that, beginning on January 1, 2011, all
counties, including the City and County of San Francisco, impose
a vehicle assessment, FTB staff estimates that this bill will
result in an annual revenue loss of $180 million in fiscal year
(FY) 2011-12 and $10 million in FY 2012-13. It is estimated
that this bill will have no revenue impact for FYs beginning
with FY 2013-14. One of the assumptions underlying these
estimates is that each county would raise the local vehicle
assessment to the maximum rate of 2%.
COMMENTS :
1)Author's statement : According to the author, " SB 10 is about
voter determination in these severely challenged fiscal times
we face today. As the state struggles to fund critical
services, we must do more to empower local communities to help
themselves. The assessment authority provided in SB 10 will
help address the biggest issue facing nearly every county in
the state: funding critical services."
2)Proponents . The proponents of this bill state that counties
face serious budget deficits, which threaten many vital
health, welfare, and public services. Deficits have been
worsened by the roll back of the VLF in 2003. This bill would
create another tool for local governments to continue to
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provide the level of public services residents demand.
3)Opponents . The opponents of this bill argue that, recently,
the VLF was substantially increased and that fairness dictates
that voters should not be presented with a ballot measure that
proposes a vehicle property tax that is unequal to the rate at
which other personal property items are taxed, which is 1%.
They further contend that increased revenues from this bill
are not dedicated to transportation and will be used for the
county GF purposes.
DMV is concerned that this bill could result in widely disparate
registration costs among counties. In addition, the option
for counties to impose a lower assessment for low-emission
vehicles would be complicated and difficult for DMV to
implement and administer. Finally, DMV argues that the
reporting requirements applicable to the FTB are unclear and
could potentially result in inaccurate GF revenue loss
estimates.
4)Local taxes . Constitutional requirements for voter approval
of local taxes were initiated with the passage of Proposition
13 in 1978, followed by Proposition 62, which was approved by
voters in 1986. Proposition 62 guaranteed that all local tax
increases be approved by voters. After Proposition 62, local
governments resorted to the use of fees and assessments, which
did not require voter approval, to fill the void. Ten years
later, in 1996, the passage of Proposition 218 added Articles
XIII C and XIII D, providing voters with control over taxes
regardless of whether they were called assessments, fees, or
charges. Proposition 218 also included a provision requiring
that special taxes receive two-thirds approval of the
electorate. In 2000, however, Proposition 39 provided a
narrow exception to the two-thirds vote requirement for
special taxes by authorizing the passage of local school
construction bond measures by approval of 55% of voters.
5)General tax vs. special tax . While Proposition 13 did not
define the term "special tax", the courts, over time, have
opined that a tax is a "special tax" whenever expenditure of
its revenues is limited to specific purposes, i.e. the
proceeds of the tax are earmarked or dedicated in some manner
to a specific project or projects. In contrast, a tax is a
"general tax" only when its revenues are placed into the GF
and are available for expenditure for any and all governmental
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purposes. [ Bay Area Cellular Telephone Co. v. City of Union
City (2008) 162 Cal. App.4th 686; Howard Jarvis Taxpayers
Assn. v. City of Roseville (2003) 106 Cal.App.4th 1178]. A
general tax must be approved by a majority vote of the
electorate, whereas a special tax may be imposed only with the
approval of at least two-thirds vote of the local voters. SB
10 authorizes a local county board of supervisors, by a
two-thirds vote, to place before the county voters, an
ordinance to levy a local vehicle assessment for general
revenue purposes, rather than a specified purpose. As such,
the ordinance only needs to be approved by a majority of the
county voters and does not require the supermajority vote
otherwise required for special taxes. The local assessment
would be administered by DMV under contract with the county,
and DMV's costs would be recovered from revenue generated by
the assessment.
6)State VLF . According to DMV, most vehicles are assessed a
VLF. The VLF was established by the Legislature in 1935 in
lieu of a property tax on vehicles. The VLF is a state tax
levied on the purchase price of a vehicle, and subsequently
annually assessed against the vehicle's value adjusted by a
statutory depreciation schedule. Proposition 1A, approved by
the voters in November 2004, requires that VLF revenue from
the existing 0.65% rate be allocated to support local health,
mental health, and social services costs under Realignment or
otherwise allocated to local government. In February 2009,
the rate of the VLF was temporarily increased from the current
rate of 0.65% to a rate of 1.15%, except for commercial
vehicles with a gross weight of 10,000 pounds or more.
Revenues from the portion of the increase from 0.65% to 1% are
retained by the GF and revenues from the additional increase
of 0.15% are transferred to a newly created Local Safety and
Protection Account, which is continuously appropriated for
specific local public safety programs. The VLF rate increase
is effective for registrations beginning May 19, 2009
(corresponding to the timing of a weekly VLF billing cycle)
and expires on June 30, 2011.
7)Local VLF . In 1993, AB 925 (Burton), authorized the City and
County of San Francisco to levy a 2% VLF for purposes of
public transit financing so long as transit fares are not
increased. The fee would have required a two-thirds vote of
the electorate. It has never been enacted by the City and
County of San Francisco. At the time of its enactment, it was
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estimated that the surcharge could have yielded over $300
million for the City and County. However, the potential fee
has effectively been voided due to a recent increase in
transit fares.
8)Deductibility of the VLF for federal and state income tax
purposes . As a personal property tax, the VLF is deductible
for both federal and state income tax purposes. Thus, for
those who itemize deductions, up to 40% of the additional VLF
would effectively be borne by the state and federal
governments in the form of reduced income tax payments. The
same would be true of a local VLF such as that proposed by
this bill. The purpose of this provision is to ensure that
the State GF is made whole for any losses arising from
additional income tax deductions claimed by the residents
because of the additional vehicle assessment. The GF is
reimbursed in arrears for this loss. Since the intent of this
bill is to reimburse the GF for the loss that would result
from the deductions taken by taxpayers for the payment of
local vehicle assessment, the Committee staff suggests
amending this bill to provide that the local vehicle
assessments authorized by this bill are not deductible for
state income tax purposes. By disallowing a deduction for
local vehicle assessments, the administrative burden placed on
both DMV and FTB will be minimized.
9)Administration of local vehicle assessments . SB 10 requires
the FTB and DMV to administer the local vehicle assessment and
requires that each agency transmit the revenue back to the
county, minus the costs of administration and reimbursements
to the GF. This bill does not restrict the total
administration costs (the imposition, administration and
transmittal of the tax or fee) for either DMV or FTB.
Further, as pointed out by DMV, the FTB may not be able to
estimate accurately the loss to the GF if the local vehicle
assessments are deductible for state income tax purposes. DMV
accepts payments of registration fees from any entity or
individual and does not keep track of which taxpayer pays the
fee. DMV's registration system is designed around vehicles,
and not individuals, and it will be costly to modify that
system to collect the necessary information.
10)The interaction of local vehicle assessments with other local
taxes . Under existing law, cities and counties may impose a
local tax under the Bradley-Burns Uniform Local Sales and Use
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Tax Law, which requires that the rate of tax be fixed at 1% of
the sales price of tangible personal property (TPP) sold at
retail in the local jurisdiction or purchased outside that
jurisdiction for use within it. Local governments also are
authorized, by the Transactions and Use Tax Law and the
Additional Local Taxes Law, to levy "district" taxes, for
general or special purposes, subject to voter approval,
provided that the combined rate of tax in the county does not
exceed 2%. In general, district taxes levied under these
provisions are levied based on a percentage of the sales price
of the TPP. Beginning July 1, 2009, 132 local jurisdictions,
including cities, counties, and special purpose entities,
impose a district tax for general or specific purposes. Some
cities and counties have more than one district tax, while
others have none.
SB 10 will insert an additional layer into California's
complicated tax structure, thus, potentially making an already
confusing system even more complicated for taxpayers to
understand. Additionally, SB 10 might have an impact on
voters' support of other local ballot measures that would
raise taxes, either at the county or city level. The voters
within that area may "max out" on local taxes and may be less
willing to approve other local ballot tax measures that are
dedicated to fund specific local needs or local projects.
Also, some counties may not be as willing to put a vehicle
assessment on the ballot knowing that it may impede its
ability to ask for tax increases on other important local
programs in the future.
11)Similar Legislation .
AB 1342 (Evans), introduced in the current legislative session,
authorizes counties, under specified circumstances, to adopt a
local PIT, a local VLF, or both. AB 1342 is pending in this
committee.
AB 1590 (Leno), introduced in the 2007-08 Legislative Session,
was similar to this bill, but was limited to the City and
County of San Francisco. AB 1590 was held in the Senate
Revenue and Taxation Committee.
AB 799 (Leno), introduced in the 2005-06 Legislative Session,
is very similar to this bill, except it applied only to the
City and County of San Francisco. AB 799 was vetoed by the
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Governor. In his veto message, the Governor stated:
"Within hours of taking office in 2003, I signed an
Executive Order to reverse the car tax increase. That
action returned $4 billion to the people of California.
Putting that money back into the hands of hard working
Californians is one of the ways we have helped our economy
grow over the last three years.
"This measure would, in effect, reinstate the car
tax for the people of San Francisco. In fact, if
the vehicle license fee increase proposed by this
bill were enacted, the people of San Francisco could
pay more than twice the amount to register their
vehicles than anyone else in the state.
"As noted in my veto messages of prior years, I am
not opposed to modest
increases in fees if such increases are approved by
the impacted voters and
not addressed in a piecemeal fashion. Although
this bill requires voter
approval, it impacts only one county."
AB 1208 (Yee), introduced in the 2005-06 Legislative
Session, would have imposed an additional VLF on the
residents of the City and County of San Francisco for the
purpose of funding maintenance and improvements of roads.
The fee would have been a flat fee per registered vehicle.
AB 1208 was vetoed by Governor Schwarzenegger.
12)This bill was double-referred with the Assembly Committee
on Transportation and passed out of that committee by a vote
of 9-5 on June 29, 2009. For a more comprehensive
discussion of this bill, refer to that committee's analysis.
REGISTERED SUPPORT / OPPOSITION :
Support
City and County of San Francisco
Opposition
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Alliance of Automobile Manufacturers
California Department of Motor Vehicles
California State Automobile Association
Automobile Club of Southern California
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098