BILL ANALYSIS �
AB 1077
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Date of Hearing: May 6, 2013
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 1077 (Muratsuchi) - As Amended: April 2, 2013
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Sales and use taxes: vehicle license fee: exclusion:
alternative fuel motor vehicles
SUMMARY : Excludes, for purposes of calculating both the vehicle
license fee (VLF) and sales and use taxes (SUT) on a new
alternative fuel vehicle (AFV), the value of the federal plug-in
electric drive vehicle tax credit and any applicable state
incentive programs, as specified. Specifically, this bill :
1)Makes the following legislative findings:
a) There is a wide disparity in fees levied on owners of
light-, medium-, and heavy-duty vehicles operated on
alternative fuels when compared to those same taxes and
fees levied on owners of comparable gasoline and diesel
fuel vehicles.
b) In some cases, the fees on AFVs are more than twice as
much as those for conventional fuel vehicles.
c) The disparity in fees exists even though the AFV may
look identical to the conventional fuel vehicle and provide
the same or lesser utility to the individual owner.
d) The existing California VLF on motor vehicles that
operate on alternative fuels is higher than for comparable
conventional fuel vehicles because AFVs generally have
higher sales prices. The higher sales prices are largely
due to the fact that these vehicles are produced in
extremely low volumes (many assembled by hand), such that
their production has not achieved the economies of scale
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that would significantly reduce their cost; and they use
many new advanced materials and technologies that also have
not yet achieved economies of scale, and therefore have a
temporarily greater cost to consumers.
e) The higher sales prices for these AFVs are expected to
be a short-term, temporary situation because prices are
expected to decline significantly to competitive levels as
volume increases. If this does not occur, these vehicles
may never be competitive, and automakers would likely
withdraw them from the market. The current VLF does not
reflect these temporary, short-term pricing situations.
Instead it intrinsically, but incorrectly, assumes that
these short-term higher prices reflect true long-term
market value of the vehicles.
f) AFVs provide benefits to California citizens that are
external to, or not reflected in, their cost to the
purchaser. These benefits include: Increasing our
national independence from foreign energy sources;
providing more transportation choices for consumers and
businesses, thus reducing our economic vulnerability to
sudden fuel price increases caused by external or internal
events; reducing air pollutants, climate change pollutants,
and toxic emissions from mobile sources; and reducing
future pressures for additional environmental controls on
existing and new businesses and industries in California.
g) It is the public policy of the State of California, the
federal government, and many local governments, to
encourage the development and use of AFVs, for the purpose
of providing the benefits described above to all California
citizens.
h) Existing VLF calculations, as they relate to the
determination of market value of AFVs, do not reflect the
critical short-term pricing issues described above, nor the
external benefits that accrue to all California citizens.
Additionally, these existing fees act as a significant
disincentive to potential purchasers of AFVs, and as such,
are contrary to existing public policies at all levels of
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government.
i) It is the intent of the Legislature to equalize the
vehicle license fee between AFVs and conventional fuel
vehicles for a period of eight years, beginning January 1,
2014, and ending December 31, 2021.
2)Temporarily excludes, for purposes of computing the SUT on a
new alternative fuel motor vehicle, the value of:
a) Any amount allowed as a federal plug-in electric drive
vehicle tax credit; and,
b) Any amount received, awarded, or allowed pursuant to a
state incentive program for the purchase or lease of an
AFV, including, but not limited to:
i) State income tax credits;<1>
ii) The Clean Vehicle Rebate Project;
iii) The California Hybrid and Zero-Emission Truck and
Bus Voucher Incentive Project; and,
iv) The On-Road Heavy-Duty Voucher Incentive Program
under the Carl Moyer Program.
3)Defines an "AFV" as a motor vehicle that operates some or all
of the time on a fuel other than gasoline or diesel.
4)Provides that, notwithstanding any provision of the
Bradley-Burns Uniform Local SUT Law or the Transactions and
Use Tax Law, the exclusion shall not apply with respect to any
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<1> As of this writing, there are no California income tax
credits related to car ownership.
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tax levied by a county, city, or district pursuant to those
laws.
5)Exempts from the determination of market value, for purposes
of computing the VLF:
a) Any amount allowed as a federal plug-in electric drive
vehicle tax credit; and,
b) Any amount received, awarded, or allowed pursuant to a
state incentive program for the purchase or lease of an
AFV, including, but not limited to:
i) State income tax credits;
ii) The Clean Vehicle Rebate Project;
iii) The California Hybrid and Zero-Emission Truck and
Bus Voucher Incentive Project; and,
iv) The On-Road Heavy-Duty Voucher Incentive Program
under the Carl Moyer Program.
6)Provides that the exclusions described above shall apply on or
after January 1, 2014, and until January 1, 2022.
7)Takes immediate effect as a tax levy.
EXISTING STATE LAW :
1)Imposes a SUT on the sale of, or the storage, use, or other
consumption of, tangible personal property (TPP), unless
specifically exempted. TPP includes motor vehicles.
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2)Computes SUTs based on the sales price of the good sold. The
greater the sale price, the greater the SUT.
3)Imposes a VLF upon vehicle owners for each vehicle owned.
4)Computes the VLF based upon the purchase price of the vehicle.
The greater the purchase price, the greater the VLF.
5)Authorizes counties and cities to impose local SUTs on TPP,
including motor vehicles.
6)Provides rebates of up to $2,500 for the purchase of
zero-emission and plug-in hybrid electric vehicles under the
Clean Vehicle Rebate Project. The rebates are available for
light-duty cars and trucks, low-speed neighborhood electric
cars, and zero-emission motorcycles.
7)Offers vouchers from $8,000 to $45,000, on a first-come,
first-served basis, to offset approximately half of the
additional cost of eligible new hybrid and electric trucks and
buses under the California Hybrid and Zero-Emission Truck and
Bus Voucher Incentive Project.
8)Offers vouchers from $10,000 to $45,000 for 10 or fewer
vehicle fleets to quickly replace or retrofit older heavy-duty
diesel vehicles under the Carl Moyer Program - On-Road
Heavy-Duty Voucher Incentive Program.
EXISTING FEDERAL LAW provides an income tax credit of up to
$7,500 for purchases of electric and plug-in hybrid electric
vehicles, which include passenger vehicles and light trucks.
The credit amount varies based on the capacity of the battery
used to fuel the vehicle. Small neighborhood electric vehicles
do not qualify.
FISCAL EFFECT : The Board of Equalization's (BOE's) preliminary
analysis estimates that this bill will reduce SUT revenues by
$4.4 million annually. As of this writing, committee staff
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await VLF revenue loss estimates from the Department of Motor
Vehicles.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
Alternative fuel vehicles provide benefits to California
citizens that are external to the cost to the purchaser.
These benefits include: increasing our national
independence from foreign energy sources; providing more
economical and sustainable transportation choices for
consumers and businesses, thus reducing our economic
vulnerability to sudden fuel price increases caused by
external events; reducing air pollutants, climate change
pollutants and toxic emissions from mobile sources;
reducing future pressures for additional environmental
controls on existing and new businesses and industries in
California; and creating new advanced transportation
technology jobs and industries in California. These
benefits should be reflected in state tax policy and fees.
2)Proponents state:
The existing California vehicle license fee and state and
local sales and use taxes on the sale or lease of
alternative fuel vehicles are higher than for comparable
conventional-fuel vehicles because alternative fuel
vehicles currently cost more. The higher cost is largely
due to the fact that these vehicles are currently produced
in low volumes using newer and/or advanced technologies,
therefore their production has not yet achieved the
economies of scale relative to conventional vehicles. As
alternative fuel vehicle production increases, the costs
associated with these vehicles will decline.
The current vehicle license fee mechanism and sales and use
tax system unfairly penalize the alternative fuel vehicles
the state encourages through a number of monetary and
non-monetary incentive programs. In some cases, consumers
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are penalized as a result of their choosing to purchase
alternative fuel-vehicles that have been mandated by the
state.
3)Opponents state:
Counties receive as much as 3.125 cents, or almost 45
percent, of the revenue the sales tax generates, depending
upon where the sale takes place. Importantly, this
includes 1.0625 cents for 2011 Realignment. It also
includes a half-cent for 1991 Realignment, most of another
half-cent for Proposition 172 public safety services, a
quarter-cent that funds county transportation activities,
and of course the site-dependent penny for Bradley-Burns
(part of which is currently redirected to the state but
reimbursed through property taxes).
Furthermore, the Vehicle License Fee is a critical funding
component of 2011 Realignment and 1991 Realignment, with
essentially all of the revenue funding county programs that
the state requires.
If favoring these purchases is an issue of statewide
concern, as passing this bill would indicate, then the
state should use statewide revenues to reimburse counties
and other local agencies for their losses, as provided by
statute. Alternatively, the bill can exempt the local
portions of the tax from the special treatment the bill
would implement.
4)BOE staff notes the following implementation concern:
Currently, most sales and use tax exemptions and exclusions
apply to the total applicable sales and use tax. However,
several partial exemptions exist in which only the state
tax portion (6.5%) of the sales and use tax rate are
exempted, such as the farm equipment and machinery
exemption. These partial exemptions are difficult for both
retailers and the BOE. They complicate both return
preparation and processing. Moreover, errors attributable
to these partial exemptions occur frequently. This results
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in additional return processing workload for the BOE.
5)Committee Staff Comments:
a) Vehicles covered : This bill defines an AFV as a motor
vehicle that operates some or all of the time on a fuel
other than gasoline or diesel. Committee staff interprets
this to include both hybrid and fully-electric vehicles and
vehicles that run on ethanol, solar power, and other
alternative fuels.
However, what this bill exempts effectively narrows the
vehicles covered by this bill. AB 1077 only exempts
amounts equal to the federal AFV tax credit and any amount
received, awarded, or allowed pursuant to a state incentive
program for the purchase or lease of an AFV including, but
not limited to, state income tax credits, the Clean Vehicle
Rebate Project, the California Hybrid and Zero-Emission
Truck and Bus Voucher Incentive Project, and the On-Road
Heavy-Duty Voucher Incentive Program under the Carl Moyer
Program. Therefore, the only vehicles that may take
advantage of this exemption are those vehicles that may
take advantage of such incentive programs.
The vehicles eligible for the federal tax credit are electric
and plug-in hybrid electric vehicles, which include
passenger vehicles and light trucks. Vehicles eligible for
the Clean Vehicle Rebate Project include light-duty
zero-emission vehicles, light-duty plug-in hybrid electric
vehicles, neighborhood electric vehicles, and zero-emission
motorcycles. Car models eligible for both the credit and
the project include the Honda Accord Plug-In Hybrid, the
Tesla Model S, the Nissan Leaf, the Chevrolet Volt, the
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Ford Fusion Energi, and the Fiat 500e.<2>
a) What is a "tax expenditure"? : Existing law provides
various credits, deductions, exclusions, and exemptions for
particular taxpayer groups. In the late 1960s, United
States Treasury officials began arguing that these features
of the tax law should be referred to as "expenditures,"
since they are generally enacted to accomplish some
governmental purpose and there is a determinable cost
associated with each (in the form of foregone revenues).
This bill would enact a new tax expenditure program, in the
form of partial sales tax and VLF exemptions for AFVs.
b) How is a tax expenditure different from a direct
expenditure? : As the Department of Finance notes in its
annual Tax Expenditure Report, there are several key
differences between tax expenditures and direct
expenditures. First, tax expenditures are reviewed less
frequently than direct expenditures once they are put in
place. This can offer taxpayers greater certainty, but it
can also result in tax expenditures remaining a part of the
tax code without demonstrating any public benefit. Second,
there is generally no control over the amount of revenue
losses associated with any given tax expenditure. Finally,
it should also be noted that, once enacted, it takes a
two-thirds vote to rescind an existing tax expenditure
absent a sunset date. This bill includes a sunset date.
c) Will AFV prices decrease under this bill? : As is often
the case, it is not entirely clear who will economically
benefit from this tax expenditure. This bill's sponsor
states that the bill's purposes include not "penalizing"
consumers who buy AFVs. However, this bill may not reduce
the total costs to such consumers. Basic economics holds
that the cost of a good is the product of both supply and
demand. All relevant, publicly available information
affects supply and demand, including tax bills, VLFs, and
perceived tax benefits. This tax expenditure will create
--------------------------
<2> Center for Sustainable Energy California, CVRP Eligible
Vehicles,
http://energycenter.org/index.php/incentive-programs/clean-vehicl
e-rebate-project/cvrp-eligible-vehicles (accessed on May 2,
2013), Internal Revenue Service, Qualified Plug-In Electric
Drive Motor Vehicles (IRC 30D),
http://www.irs.gov/Businesses/Qualified-Vehicles-Acquired-after-1
2-31-2009 (accessed on May 2, 2013).
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certain tax benefits for owning an AFV. These, in turn,
will likely increase demand for AFVs. When demand rises
and supply stays constant, prices rise. This bill's
sponsors admit that manufacturers are currently unable to
manufacture AFVs in large volumes. Additionally, electric
and hybrid vehicles often have long waitlists.<3> If car
manufacturers could easily increase their supplies, they
likely would. Therefore, the cost of AFVs may rise. Since
this tax expenditure might raise the costs of AFVs as much
it lowers taxes upon them, this tax expenditure may not
yield a net economic benefit to car purchasers in
California. Instead, it might only produce a revenue loss
for the general fund and increase profits for each sale of
an AFV.
As far as Committee staff is aware, the only AFV manufacturer
with factories in California is Tesla Motors.<4> As of
April 1 of this year, Tesla's waitlist was 15,000 orders
long.<5> The company posted its first ever profits this
year.<6>
However, several AFV manufacturers do have dealerships in
California.
d) What will be enough? : California has already created
--------------------------
<3> See, e.g., Nick Kurczewski, Nissan Prunes Leaf Waiting
List, Road & Track June 16, 2011, Mike Ramsey & Tess Stynes,
Tesla Sees First-Ever Quarterly Profit, Wall Street Journal Apr.
1, 2013 (15,000 order-long waitlist).
<4> BYD Motors, a Chinese vehicle manufacturer, has announced
plans to build a plug-in vehicle manufacturing plant in the
Mojave Desert. John Rogers, 1st Chinese Automaker in US to Open
Calif. Plants, Associated Press May 1, 2013. BYD is not among
the bill's supporters.
CODA Automotive owns a plant in Benicia. It has filed a
bankruptcy petition and has announced plans to exit the auto
business. Robert Jablon, Electric car maker CODA files for
Chapter 11, Associated Press May 1, 2013.
<5> Mike Ramsey & Tess Stynes, Tesla Sees First-Ever Quarterly
Profit, Wall Street Journal Apr. 1, 2013.
<6> Mike Ramsey & Tess Stynes, Tesla Sees First-Ever Quarterly
Profit, Wall Street Journal Apr. 1, 2013.
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several economic incentives for AFV ownership. They
include the Clean Vehicle Rebate Project, the California
Hybrid and Zero-Emission Truck and Bus Voucher Incentive
Project, and the Carl Moyer Program. This bill's author
and sponsor do not explain why these existing economic
incentives are insufficiently large government subsidies.
e) Will AB 1077 actually increase AFV ownership in
California? : This bill's sponsors admit that manufacturers
are currently unable to manufacture AFVs in large volumes.
Many electric and hybrid vehicles have long waitlists.<7>
Supply already cannot keep pace with demand. This bill
might not increase the number of AFVs in California beyond
what it otherwise would have been, because every vehicle
that would be bought under this bill would still be bought
even without this bill. Instead, AB 1077 might only reward
consumers for buying a vehicle they would have bought
anyway. As such, this bill might not increase AFV
ownership.
f) An exhaustive list : The Committee may wish to make the
list of federal and state income tax credits, rebates, and
other financial incentives excluded from the SUT and VLF
bases exhaustive. At present, the list is non-exhaustive.
As such, in the future taxpayers might claim that various
state-created incentives for vehicle ownership not intended
to be excluded by this bill are excluded by this bill.
g) Suggested amendments : The Committee may wish to
consider the following amendments:
i) Delete references to state income tax credits for
AFV ownership, since California does not have any such
income tax credit.
-------------------------
<7> See Mike Ramsey & Tess Stynes, Tesla Sees First-Ever
Quarterly Profit, Wall Street Journal Apr. 1, 2013 (15,000
order-long waitlist.).
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ii) Cross-reference the specific California code
sections or regulations creating rebates, vouchers, and
other financial incentives that this bill will exclude
from the SUT and VLF bases.
h) Similar Legislation :
i) AB 220 (Ting), introduced in the current legislative
session, provides a variety of incentives to encourage
the purchase and use of low-emission vehicles (LEVs) in
California. Among them, it exempts LEV purchases from
state SUT until January 1, 2018. AB 220 is set to be
heard in this Committee on May 13, 2013.
ii) SB 221 (Pavley), introduced in the current
legislative session, exempts from the SUT any amount
allowed as a federal tax credit, and any amount received,
awarded, or allowed under a state AFV incentive program.
SB 221 is currently pending in the Senate Governance and
Finance Committee.
iii) AB 1304 (Saldana), introduced in the 2009
legislative session, would have exempted the sale and
purchase of electric vehicles, as defined, from state and
local SUTs. The exemption would have been limited to 100
electric vehicles per manufacturer. AB 1304 died in the
Assembly.
iv) AB 554 (Campbell), introduced in the 2001
legislative session, would have exempted a specific
percentage of the gross receipts from sales of ultra-low
emission vehicles, super ultra-low emission vehicles,
partially zero emission vehicles, zero emission vehicles,
and advanced technology partial zero emission vehicles
from the state SUT. AB 554 died in the Assembly.
v) AB 2085 (Ortiz), introduced in the 1998 legislative
session, would have exempted the sale of a new
low-emission vehicle, as defined, from state and local
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SUTs. AB 2085 was held in the Assembly Appropriations
Committee without further action.
vi) SB 1096 (Brulte), introduced in the 1997 legislative
session, would have exempted the incremental costs of
purchasing certain heavy motor vehicles whose engines
meet specific requirements. SB 1096 died in the Senate.
vii) AB 3162 (Burton), introduced in the 1996 legislative
session, would have exempted the incremental costs of
purchasing a new low-emission vehicle or the full cost of
purchasing a retrofit device to convert a conventional
vehicle into a low-emission vehicle. AB 3162 died in the
Assembly.
viii) SB 780 (Leonard), introduced in the 1995 legislative
session, would have exempted the incremental costs of
purchasing a low-emission vehicle or the full cost of
purchasing a retrofit device to make a vehicle
low-emission in its operation. SB 780 died in the
Senate.
REGISTERED SUPPORT / OPPOSITION :
Support
California Electric Transportation Coalition (Sponsor)
American Lung Association
Bay Area Air Quality Management District
California Municipal Utilities Association
CALSTART
Chargepoint
Ecotality
General Motors
Honda
National Resources Defense Council (NRDC)
Nissan
Pacific Gas & Electric Company
Plug In America
San Diego Gas & Electric
Sacramento Municipal Utility District (SMUD)
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Southern California Edison
Southern California Gas Company
Southern California Public Power Authority
South Coast Air Quality Management
Opposition
California State Association of Counties
Analysis Prepared by : Edward Beeby & M. David Ruff / REV. &
TAX. / (916) 319-2098