BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 1243 HEARING: 5/9/12
AUTHOR: Lowenthal FISCAL: Yes
VERSION: 3/27/12 TAX LEVY: Yes
CONSULTANT: Miller
SALES AND USE TAX: BUNKER FUEL EXEMPTION
Repeals the sunset on sales and use tax exemption for
maritime fuels.
Background and Existing Law
I. State Sales Tax: The state's current sales tax structure
is as follows:
------------------------------------------------------------------
| | | |
| Rate | Jurisdiction | Purpose/Authority |
| | | |
|-------+--------------------+-------------------------------------|
| | | |
|3.9375%|State (General |State general purposes |
| |Fund) | |
| | | |
|-------+--------------------+-------------------------------------|
| | | |
| 0.25% |State (Fiscal |Repayment of the Economic Recovery |
| |Recovery Fund) |Bonds |
| | | |
|-------+--------------------+-------------------------------------|
| | | |
|1.0625%|State (Local |Counties to fund public safety |
| |Revenue Fund 2011) |programs |
| | | |
|-------+--------------------+-------------------------------------|
| | | |
| 0.50% |State (Local |Local governments to fund health and |
| |Revenue Fund) |welfare programs |
| | | |
|-------+--------------------+-------------------------------------|
| | | |
| 0.50% |State (Local Public |Local governments to fund public |
SB 1243 -- 3/27/12 -- Page 2
| |Safety Fund) |safety services) |
| | | |
|-------+--------------------+-------------------------------------|
| | | |
| 1.00% |Local (City/County) |City and county general operations; |
| | | |
| | | |
| |0.75% City and |Dedicated to county transportation |
| |County |purposes |
| | | |
| |0.25% County | |
|-------+--------------------+-------------------------------------|
| | | |
| 7.25% |Total Statewide | |
| |Rate | |
| | | |
------------------------------------------------------------------
In addition, local jurisdictions may impose their own
optional, voter-approved sales taxes, with rates that vary
from jurisdiction to jurisdiction, but on average equal
0.86 percent. This local "transactions and use tax" may be
no greater than 2% in any county. For example, if the city
of Eagle Rock were to impose a 1% sales tax, other cities
can impose a 1% tax, but a county-wide tax may not exceed
the 2% allowance.
II. Maritime Fuels. Under existing state law, sales of
fuel and petroleum products to water common carriers, for
immediate shipment outside this state, are exempt from tax
for activities after the first out-of-state destination.
The exemption requires a water common carrier to only pay
tax on the fuel needed to get from California to its first
out-of-state destination. The law defines "first
out-of-state destination" as the first point reached
outside this state by a common carrier in the conduct of
its business as a common carrier at which cargo or
passengers are loaded or discharged, cargo containers are
added or removed, fuel is bunkered, or docking fees are
charged. The water common carrier is required to furnish
the seller of fuel or petroleum products an exemption
certificate in writing, specifying the quantity of fuel or
petroleum products exempt from sales and use taxation.
This exemption is scheduled to sunset on January 1, 2014.
Until July 15, 1991, sales of fuel and petroleum products
SB 1243 -- 3/27/12 -- Page 3
to water, air, and rail common carriers were exempt from
tax when used in the conduct of the carrier's common
carrier activities after the first out-of-state
destination. The exemption for bunker fuel purchased by
qualified waterborne vessels was dependent upon the amount
of bunker fuel on board the vessel prior to refueling. If
the quantity of bunker fuel on board the vessel on arrival
at the California port was sufficient to enable the vessel
to reach its first out-of-state destination, then the
bunker fuel loaded at the California port would have been
entirely exempt from tax. However, if the quantity of
bunker fuel needed on the voyage from the California port
to the first out-of-state destination and the amount used
while in port exceeded the quantity of fuel on board the
vessel on arrival at the California port, the amount of
that excess was subject to tax. The exemption was repealed
in 1991 and from July 15, 1991 through December 31, 1992,
sales of bunker fuel were subject to tax.
Beginning January 1, 1993 through 2003, bunker fuel was
exempted for certain uses through various bills (AB 2396,
1992 and AB 366, 1997). The LAO issued their report
www.lao.ca.gov/2001/bunker_fuel/012501_bunker_fuel.pdf in
2001 on the effect of the bunker fuel exemption, and
concluded "On this tax policy basis, we recommend that the
Legislature remove the existing sunset for the current
partial (sales and use tax) exemption for bunker fuel
sales, and make the exemption permanent. This would result
in the (sales and use tax) being levied in the future only
on the portion of the fuel purchased in California which is
consumed between California and the first out-of-state
destination. This action would result in treating bunker
fuel sales similarly to other export sales and place
California ports on par with other U.S. out-of-state
ports."
SB 145 (Perata, 2002) was vetoed and bunker fuel was
subjected to the sales tax from January 1, 2003 through
March 31, 2004. SB 808 (Karnette, 2003) exempted the sales
and use taxes consistent with the previous law.
The LAO released an updated report in November 2007, and
found that the effects of the exemption had not changed
since their 2001 report.
www.lao.ca.gov/2007/tax_expenditures/tax_ The LAO
concluded "On this tax policy basis, we recommend that the
SB 1243 -- 3/27/12 -- Page 4
Legislature remove the existing sunset for the current
partial (sales and use tax) exemption for bunker fuel
sales, and make the exemption permanent. This would result
in the (sales and use tax) on fuel purchased in California
being levied in the future only on the portion which is
consumed between California and a ship's arrival at its
first out-of-state destination. This action would
permanently result in treating bunker fuel sales similarly
to other export sales and place California ports on par
with other out-of-state ports in the nation."
Proposed Law
Senate Bill 1243 eliminates the January 1, 2014 sunset date
on the existing sales and use tax exemption for fuel and
petroleum products (such as bunker fuel) sold to water
common carriers.
The bill would take effect immediately as a tax levy.
State Revenue Impact
The BOE estimates that this bill will result in a revenue
loss of between $91.7 to $137.5 million to the state.
Comments
1. Purpose of the bill . The author introduced this bill
to protect port related jobs by maintaining a partial sales
tax exemption for maritime fuel, which is set to expire.
2. Sunset . This issue has been studied by the LAO twice
with similar results: a revocation of this exemption will
result in a job loss to the state because refueling at
ports outside the state is relatively easy given the size
and capacity of large ships. The results of the LAO study
are one of the most conclusive on a sales and use tax
exemption. This credit and exemption is continually
reviewed and improved and therefore the Committee may wish
to consider a 10-year sunset to review this exemption
again.
SB 1243 -- 3/27/12 -- Page 5
Support and Opposition (5/3/12)
Support : American President Lines; American Waterways
Operators; California Taxpayers Association; City of Carson
Mayor, Jim Dear; CMA CGM America, LLC; Cruise Lines
International Association; Futureports; General Steamship
Agencies; General Steamship Corporation; Harbor Association
of Industry & Commerce; Horizon Lines; Inlandboatman's
Union of the Pacific; International; International
Longshore & Warehouse Union (ILWU); ILWU - Northern CA
District Council; ILWU - Southern CA District Council;
Maersk, Inc.; Masters, Mates and Pilots Union; Matson
Navigation Company, Inc.; Mitchell and Mitchell Insurance
Agency; MOL (America) Inc.; OOCL Inc.; Pacific Merchant
Shipping Association; Sailor's Union of the Pacific;
Seafarers International Union; Western Ocean Services; Yang
Ming Corporation; 15 members of the Inlandboatmen's Union -
Southern CA Region;
Opposition : Unknown.