BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair SB 1485 (Kehoe) - Fuel taxes: blended fuels. Amended: April 19, 2012 Policy Vote: T&H 9-0 Urgency: No Mandate: No Hearing Date: May 7, 2012 Consultant: Mark McKenzie This bill meets the criteria for referral to the Suspense File. Bill Summary: SB 1485 would authorize producers of blended fuel to receive a refund of motor vehicle fuel taxes paid after January 1, 2011 on the gasoline that is ultimately used to produce a blended fuel, as specified. Fiscal Impact: Estimated costs of approximately $288,000 (Motor Vehicle Fuel Tax Fund) in 2012-13 to pay refunds of excise taxes paid from January 1, 2011 through June 30, 2012. Ongoing estimated costs of $194,000 annually (Motor Vehicle Fuel Tax Fund), beginning in 2012-13, for continued refunds of excise taxes. Background: Under the Motor Vehicle Fuel Tax (MVFT) Law, the state currently imposes an excise tax of $0.357 per gallon on the removal of gasoline at the refinery or terminal rack. The MVFT is comprised of an excise tax of $0.18 per gallon and a surtax of $.0177 which is adjusted annually pursuant to the gas tax swap to ensure revenue neutrality based upon the amount of state sales tax that would have been paid if the General Fund portion of the sales and use tax on gasoline were in place. On July 1 of this year, the total excise tax rate will increase to $0.36 per gallon to maintain the revenue neutrality provisions of the gas tax swap. Existing law authorizes a refund of MVFT paid by any person who buys and uses the gasoline for purposes other than operating a motor vehicle upon the public highways of the state. To receive the refund, a taxpayer must submit a claim form to the State Controller's Office (SCO). E85 is an alcohol fuel blend that nominally contains 85% ethanol and 15% gasoline by volume. Alcohol fuel containing no more than 15% gasoline or diesel fuel, including E85, is subject to SB 1485 (Kehoe) Page 1 the Use Fuel Tax (UFT), which is imposed at a rate of $.09 per gallon at the point of retail sale. The SCO has determined that E85 producers are not entitled to a refund of motor vehicle fuel taxes paid on gasoline that is combined with alcohol to produce E85 because the final "use" of the fuel is for operating a vehicle on the public highways. Proposed Law: SB 1485 would expressly authorize a refund of MVFT paid when a person buys and uses motor vehicle fuel for the purpose of producing a blended fuel that will be used to operate motor vehicles upon the state's public highways, provided the UFT is paid at the point of retail sale. Staff Comments: The bill would apply to refund claims submitted on or after January 1, 2011 for which the person shows that the applicable fuel tax has been paid. According to data provided by the Board of Equalization, an estimated 675,000 gallons of gasoline was purchased for production of blended alcohol fuels below the rack from January 1, 2011 through March 31, 2012. Based upon this volume, staff estimates that producers of alcohol fuel would be eligible for up to $288,000 in refunds for the retroactive period specified in the bill (January 1, 2011 through the end of the 2011-12 fiscal year). Assuming an effective date in the first quarter of the 2012-13 fiscal year, SB 1485 would result in ongoing costs to the Motor Vehicle Fuel Tax Fund of up to $194,000 per year, beginning in 2012-13. Recommended Amendments: Staff recommends the following technical amendment: Page 3, line 21, insert the word "tax" after "fuel."