BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                          SB 653 (Steinberg)
          
          Hearing Date: 05/16/2011        Amended: 04/27/2011
          Consultant: Mark McKenzie       Policy Vote: G&F 6-2
          _________________________________________________________________
          ____
          BILL SUMMARY: SB 653 would authorize counties and school 
          districts to impose a local personal income tax, vehicle license 
          fee (VLF), transactions and use tax, extractive business 
          activities tax, oil severance tax, and excise tax, with voter 
          approval.
          _________________________________________________________________
          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2011-12      2012-13       2013-14     Fund
           Local revenue gains    Unknown, very major revenue gains to 
          Local
                                 counties and school districts that impose
                                 one or more local taxes (see staff 
          comments)

          FTB one-time costs     Unknown significant startup costs to 
          establish   General
                                 procedures and mechanisms for 
          administering 
                                 local income taxes
                                 (reimbursement likely impractical)

          FTB ongoing costs      All ongoing administrative costs paid by 
          local                    Local
                                 taxing entities on a reimbursement basis

          BOE one-time costs     Unknown significant fixed startup 
          costsGeneral
                                 that exceed reimbursement authority

          BOE ongoing costs      Preparatory costs for each new tax reimb- 
                                 Local
                                 ursed as they are incurred, and ongoing 
                                 administrative costs reimbursed upon 
          collection









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          DOC: certify stripper wells       Annual costs of up to $3,200 
          if all wells           General/
                                 require certification            Special*

          DMV: VLF administration$116 one-time programming costs, ongoing  
          Special**
                                 costs reimbursed by local taxing entities

          Tax revenue loss       Maximum one-time loss of $150,000 if 
          allGeneral
           (VLF deductions)      counties impose 1.35% VLF (losses 
          reimbursed
                                 in the following year) 
          ____________
          * Oil, Gas, and Geothermal Administrative Fund
          ** Motor Vehicle Account
          _________________________________________________________________
          ____
          STAFF COMMENTS: This bill meets the criteria for referral to the 
          Suspense File. 
          This bill would authorize each of the 58 counties and 
          approximately 1,000 school districts, subject to limitations of 
          the California Constitution, to levy, increase, or extend any of 
          the following taxes, upon voter approval of a local ordinance or 
          resolution:
                 A local personal income tax at a maximum rate of 1% of 
               taxable income.
                 A local vehicle license fee of up to 1.35%.
                 A transactions and use tax that would be excluded from 
               the 2% combined county and city rate limit in current law.
                 An excise tax, including but not limited to a local 
               alcoholic beverage tax of 5 cents per drink, as specified, 
               a local cigarette and tobacco products tax of 5 cents per 
               cigarette, as specified, a local sweetened beverage tax of 
               1 cent per ounce, as specified, and a local medical 
               marijuana tax.
                 A local tax on extractive business activities at a rate 
               of up to 2% of the wholesale value per unit measure.
                 A local oil severance tax of up to 10% of the gross 
               value of the product, as specified.

          The bill requires the Department of Motor Vehicles (DMV) to 
          administer the local VLF, the Franchise Tax Board (FTB) to 
          administer the local income tax, and the Board of Equalization 








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          (BOE) to administer the local transactions and use tax, various 
          excise taxes, and the oil severance tax.  A local taxing entity 
          may either administer a specified excise tax on its own behalf 
          or through a contract with BOE.  Staff notes that the bill is 
          silent on the administration of the local medical marijuana tax 
          and other unspecified excise taxes, as well as the local tax on 
          extractive business activities.

          Total local revenue gains would depend upon the number of 
          entities imposing a tax, which local taxes are imposed, and the 
          rates of those taxes.  For example, if the following taxes were 
          imposed statewide at the specified rates, annual local revenue 
          gains would be:
                 1% personal income tax on all residents: $8 billion
                 0.5% transactions and use tax: $2.2 billion
                 1.35% VLF on all vehicles: $4.6 billion
                 2% oil severance tax: $378 million
                 5 cents per cigarette ($1 per pack): $813 million
                 5 cents per drink alcoholic beverage tax: $16.1 million
                 Revenue impact of a 1 cent per ounce sweetened beverage 
               tax is unknown

          The bill would require a local taxing entity to contract with 
          FTB for the administration of a local income tax approved by 
          voters.  FTB indicates that additional staff and General Fund 
          resources would be necessary to implement the bill without 
          adversely affecting existing revenue generating functions.  The 
          reimbursement structure established in the bill would require 
          FTB to incur significant costs until the local income tax 
          generated new revenues sufficient to provide reimbursement by 
          the local entity.  It is unlikely that the first county or 
          school district that imposes a local income tax would be able to 
          cover FTB's one-time implementation costs in their entirety, and 
          reimbursement for these one-time costs would be impractical.  
          All ongoing administrative costs would be paid on a 
          reimbursement basis.

          With respect to the local excise tax authority provided in the 
          bill, the local entity would have the option of either 
          administering the tax on its own behalf or contracting with BOE, 
          as specified.  Any costs that BOE would incur in preparing to 
          administer the tax, up to a cap of $175,000, would be reimbursed 
          as costs are incurred.  All ongoing BOE costs would be 
          reimbursed from revenues collected.  Staff notes that the bill 








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          does not address how BOE would be reimbursed for its one-time 
          fixed startup costs to implement any new local excise tax 
          program.  It would be infeasible to impose these costs onto the 
          first county or school district that imposed a local excise tax, 
          and these costs would easily exceed the cap of $175,000 for 
          preparatory costs identified in the bill.

          Staff notes a concern that a taxpayer could be subject to 
          multiple levels of local taxation if, for instance, that person 
          is geographically located in the boundaries of a county, an 
          elementary school district, and a high school district that each 
          impose a tax authorized by this bill.  This would be most likely 
          to occur with the local personal income tax and certain local 
          excise taxes.

          The oil severance tax provisions of SB 653 provide for an 
          exemption for oil produced by a "stripper well" in which the 
          average value of oil as of January 1 of the prior year is less 
          than $30 per barrel price of California oil.  A stripper well is 
          defined as a well certified by the Department of Conservation 
          (DOC) as incapable of producing an average of more than 10 
          barrels of oil per day during an entire month.  The bill would 
          require DOC to provide notification of all wells that have been 
          certified as a stripper well.  DOC indicates that it would incur 
          additional costs of approximately $4.1 million in the initial 
          year and $3.2 million ongoing for 22 new staff to certify the 
          estimated 30,000 stripper wells in the state.  

          SB 653 would require DMV to administer a local VLF imposed by a 
          county or school district, and would require the taxing entity 
          to contract with DMV to reimburse the department for all costs 
          incurred in the administration and operation of a local VLF.  
          DMV indicates that it would incur one-time programming costs of 
          $116,000 to prepare for the administration of a local VLF prior 
          to collecting any revenues.  Ongoing costs would be reimbursed 
          by the local taxing entity from revenues collected.  Staff 
          notes, however, that DMV could also incur additional 
          unreimbursable costs related to the discount fees the department 
          pays to credit card companies, based on the vehicle transaction 
          amount, for each registration renewal processed online with a 
          credit card.  Total annual transaction fees could be as high as 
          $14.5 million annually.  

          Existing law provides that the VLF, which is effectively a 








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          property tax on vehicles, is deductible for both the state and 
          federal income tax purposes.  SB 653 would require FTB to 
          estimate General Fund losses attributable to each county or 
          school district that imposed a local tax that is deductible on 
          income tax returns.  Each local taxing agency would be required 
          to reimburse the state for any losses due to deductions allowed 
          for that fiscal year.  FTB estimates that the revenue impact 
          related to VLF deductions would be $150 million annually if all 
          counties imposed this local tax.  These amounts would be 
          reimbursed in the following year, resulting in a one year 
          General Fund impact.

          Staff recommends that the bill be amended to address the 
          numerous technical and implementation concerns noted by BOE and 
          FTB.