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."