BILL ANALYSIS Ó
AB 1907
Page A
Date of Hearing: April 28, 2014
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 1907 (Ridley-Thomas) - As Amended: April 3, 2014
Majority vote. Fiscal committee.
SUBJECT : Use fuel tax: natural gas: gallon equivalent
SUMMARY : Requires that Compressed Natural Gas (CNG) and
Liquefied Natural Gas (LNG) sold at retail for use as a motor
vehicle fuel be sold in a gasoline gallon or diesel gallon
equivalent, and revises the corresponding excise tax accordingly
to remain revenue-neutral. Specifically, this bill :
1)Requires that CNG sold at retail to the public for use as a
motor vehicle fuel shall be sold in a gasoline gallon
equivalent (GGE) equal to 126.67 cubic feet, or 5.66 pounds,
of CNG, measured at the standard pressure and temperature
required.
2)Requires that LNG sold at retail to the public for use as a
motor vehicle fuel shall be sold in a diesel gallon equivalent
(DGE) equal to 6.06 pounds of LNG.
3)Requires a person selling CNG or LNG for use as a motor fuel
at retail to the general public to display and label in a
conspicuous place on the dispensing apparatus the phrase
"Gasoline gallon equivalent" or "Diesel gallon equivalent,"
respectively.
4)Sunsets the current excise tax rate for natural gas and CNG
before January 1, 2015.
5)Imposes, on or after January 1, 2015, an excise tax rate on
natural gas as follows:
a) The rate of $0.0887 for each 126.67 cubic feet, or 5.66
pounds, of CNG used, measured at standard pressure and
temperature.
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b) The rate of $0.1017 for each 6.06 pounds of LNG used.
6) Provides that the excise tax will not apply to the use of CNG
or LNG used in a vehicle during any period of time for which
the owner or operator of the vehicle has paid the annual flat
rate fuel tax.
7)Provides that in circumstances where the owner or operator has
prepaid the annual flat rate fuel tax, the owner or operator
shall be solely responsible for the taxes due under this part
and the fuel seller shall not be liable for collecting and
remitting those taxes.
8)Makes technical amendments consistent with changes.
EXISTING LAW :
1)Imposes an excise tax of $0.18 per gallon for use of fuels
under the Use Fuel Tax Law. (Revenue and Taxation Code (R&TC)
Section 8601.)
2)Imposes an excise tax on CNG at a rate of $0.07 per 100 cubic
feet. (R&TC Section 8651.6.)
3)Imposes an excise tax on LNG at a rate of $0.06 per gallon.
(R&TC Section 8651.6)
4)Defines "fuel" to include any combustible gas or liquid, by
whatever name the gas or liquid may be known or sold, used in
an internal combustion engine for the generation of power to
propel a motor vehicle on the highways except fuel that is
subject to the Motor Vehicle Fuel Tax Law or the Diesel Fuel
Tax Law. The definition does not include any combustible gas
or liquid specifically manufactured and used for racing motor
vehicles at a racetrack. (R&TC Section 8604.)
5)Provides that an owner or operator of a vehicle propelled by
liquefied petroleum gas, LNG, and CNG may pay an annual flat
rate fuel tax based on the type or weight of the vehicle
instead of the per gallon or cubic foot rate. (R&TC Section
8651.7.)
6)Requires the vendor who sells or delivers the fuels to collect
the tax from the user and provide a receipt. (R&TC Section
8732.)
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FISCAL EFFECT : The change in measurement does not change
revenue.
COMMENTS :
1)The Author's Statement . The author has provided the following
statement in support of this bill:
Traditional retail tax practices for Federal and State
governments are based on a "physical gallon" of measurement
versus a measurement of actual "energy content."
Unfortunately, these traditional volumetric taxation
methods disadvantage emerging domestic alternative fuels
like [CNG] and [LNG] due to their lower energy contents.
Specifically, to achieve the same British Thermal Units
(BTU's) of energy, it takes approximately1.7 LNG gallons to
match the same energy content of a single gallon of diesel.
In an effort to solve this, state tax commissions are
converting their systems from a volumetric tax to an energy
equivalent tax. This ensures a smoother transaction for
truck fleets and fuel station operators in purchasing and
selling natural gas fuel, respectively.
Nine other states, including Arkansas, Colorado, Florida,
Georgia, Indiana, Ohio, Oklahoma, Texas, and Virginia, have
adopted similar measures.
AB 1907 would amend California's fuel excise tax code to
create an alignment with the growing number of states that
are modifying their tax codes to make way for the increased
use of natural gas for transportation.
2)Arguments in Support . Proponents of this bill state, "[t]his
bill will simplify and standardize the sale of natural gas as
a transportation fuel by requiring [CNG] to be sold as a
[GGE], and LNG to be sold as a [DGE], allowing consumers to
make a price comparison to a common product that everyone is
familiar with." Proponents emphasize that "[i]ncreasing the
use of natural gas in the transportation market has enormous
benefits for California. Natural gas-powered light - and
heavy-duty vehicles can provide an immediate and
cost-effective solution to achieve much needed emission
reductions in the near term, and can serve as the foundation
for a heavy-duty emission reduction strategy in the long
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term."
3)Background . In 1993, the National Conference on Weights and
Measures came together to determine the way in which CNG would
be sold to the public at retail. The working group focused on
providing the industry a method of selling natural gas that
would be familiar to consumers, providing officials with a
verifiable method of determining the accuracy of natural gas,
and providing a uniform standard of measurement. A
recommendation was made to use GGE for the sale of CNG because
it would be convenient for retail customers to compare the
cost and fuel economy of a natural gas vehicle to a comparable
gasoline vehicle.
CNG can be measured by volume in standard cubic feet (volume),
by weight (pounds), or by its energy content (BTU). The
conversion rate from cubic feet to pounds for CNG is not
common knowledge, nor is the energy content of CNG to an
equivalent gallon of gasoline. This makes it difficult for
consumers compare the cost of fuels sold using different
methods of measurements. The use GGE and other gasoline
equivalents, therefore, provide consumers with a simple way of
comparing the price of energy in natural gas to a common
product that consumers are familiar with. In this case, GGE
is based on the energy equivalent of a single gallon of
regular gasoline and DGE is based on a single gallon of
diesel.
4)What does this bill do ? This bill would require a rate of
$0.0887 for each 5.66 pounds of CNG. According to the
National Institute of Standards and Technology, 1 GGE is
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equivalent to 5.66 pounds of natural gas.<1> Additionally,
this bill would impose an excise tax at a rate of $0.1017 for
each 6.06 pounds of LNG. According to the Clean Vehicle
Education Foundation, 1 DGE is equal to 6.06 pounds of LNG.
In essence, the bill applies the rate to the gallon or diesel
equivalent, which is the required unit of measurement under
this bill when selling CNG or LNG.
According to BOE's staff comment, the change in rate does not
cause a change in revenue because the rate per pound remains
the same. As an illustration, the current rate of $0.07 per
100 cubic feet of CNG is equal to $0.02 per pound. The
proposed change in this bill to $0.0887 per 5.66 pounds of CNG
is also equal to $0.02 per pound. The rate per pound in this
bill does not change. Therefore, the only change in this bill
is the method of measurement, not the rate.
5)Purpose of this bill . By allowing the excise tax to be
imposed on GGE or DGE, it makes it easier for retailers to
administer the use tax. Also, requiring retailers to display
GGE and DGE labels will help consumers compare the cost of a
gallon of fuel and an equivalent amount of CNG or LNG.
Providing prices of GGE or DGE may also help inform customers
of the financial benefits of switching to CNG or LNG. For
example, the national average price for a GGE of CNG is about
$2.11. This is about $1 less than average price of a gallon
of gasoline.
6)Double-referred . This bill is double-referred to the Assembly
Committee on Business, Professions and Consumer Protection,
and passed out of the Committee on a 14-0 vote on April 22,
2014. For additional discussion of this bill's provisions,
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<1> The Institute of Gas Technology and the Gas Research
Institute surveyed 6811 samples of natural gas nationwide and
concluded that the average natural gas in the U.S. had an energy
content of 923.7 British Thermal Unit (BTU)/standard cubic feet
(scf) and a density of 0.0458172 lbs./cubic foot, which
translates into 20,160.551 BTU/lbs. Gasoline has an energy
content of 114.118 BTU/gallon. Dividing the energy content of
gasoline by the energy content of natural gas produces the
gasoline gallon equivalent. (114.118 BTU/gal ? 20,160.551
BTU/lbs. = 5.66 lbs.) Therefore, one GGE is equal to 5.66 lbs.
of natural gas. Similar calculations have been made by the
Clean Vehicle Education Foundation to arrive at the conclusion
that a DGE is equal to 6.06 lbs. of LNG.
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please refer to that committee's analysis.
REGISTERED SUPPORT / OPPOSITION :
Support
California Natural Gas Vehicle Coalition (Sponsor)
Bay Area Air Quality Management District
San Diego Gas & Electric
Southern California Gas Company
Opposition
None on file
Analysis Prepared by : Carlos Anguiano / REV. & TAX. / (916)
319-2098