BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 808 HEARING: 5/8/13
AUTHOR: deLeón FISCAL: Yes
VERSION: 4/23/13 TAX LEVY: Yes
CONSULTANT: Miller
SALES AND USE TAXES: AIR COMMON CARRIER
Excludes the sales and use tax exemption for jet fuel for
employers that do not provide health care to its employees.
Background and Existing Law
Sales Tax
The state sales and use tax rate is 7.50% as detailed below
and is general imposed on all tangible personal property
unless specifically exempt. Cities and Counties may
increase the sales and use tax rate up to 2% for either
specific or general purposes with a vote of the people.
-------------------------------------------------------------
| | | |
| Rate | Jurisdiction | Purpose/Authority |
| | | |
|-------+--------------------+--------------------------------|
| | | |
|3.9375%|State (General |State general purposes |
| |Fund) | |
| | | |
|-------+--------------------+--------------------------------|
| | | |
|1.0625%|Local Revenue Fund |Realignment of local public |
| |2011 |safety services |
| | | |
| | | |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.25% |State (Fiscal |Repayment of the Economic |
| |Recovery Fund) |Recovery Bonds |
SB 808 -- 4/23/13 -- Page 2
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.25% |State (Education |Schools and community college |
| |Protection Account) |funding |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.50% |State (Local |Local governments to fund |
| |Revenue Fund) |health and welfare programs |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.50% |State (Local Public |Local governments to fund |
| |Safety Fund) |public safety services |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 1.00% |Local (City/County) |City and county general |
| | |operations. Dedicated to county |
| | |transportation purposes |
| |0.75% City and | |
| |County | |
| | | |
| |0.25% County | |
|-------+--------------------+--------------------------------|
| | | |
| 7.50% |Total Statewide | |
| |Rate | |
| | | |
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Jet Fuel
Existing law provides a sales and use tax exemption for
fuel and petroleum products sold to carriers when the final
destination is a point outside the United States. If an
air common carrier's final destination were France, for
example current law would exempt the entire sale of fuel
purchased in California, even if that carrier had stops in
Los Angeles and New York before reaching its final
destination. On the other hand, if the air carrier's final
destination was somewhere in the United States, current law
would impose tax on the entire sale of the fuel in
California Common carriers are also exempt from tangible
SB 808 -- 4/23/13 -- Page 3
personal property other than fuel and petroleum products
when the property is shipped to a point outside the United
States. Bunker fuel for ships is taxed in a similar
fashion to jet fuel.
Proposed Law
Senate Bill 808 provides that air common carrier's sales
and use tax exemption for purchases of fuel shall not apply
to purchases made if the carrier does not provide BOE with
documentation that demonstrates that contractors and
subcontractors performing labor or services on the
carrier's behalf provide health care coverage for their
employees and dependents.
SB 808 requires the carrier to submit documentation by June
30, 2014 and before June 30 annually thereafter. If the
BOE does not receive the documentation by December 1, 2014
and every December 1 thereafter, it must notify the carrier
that the exemption shall not apply to fuel purchased the
following calendar year or any subsequent year unless the
documentation is submitted.
SB 808 specifies that the carrier is liable for sales tax
as if it were the retailer if the carrier claims an
exemption when the exemption is not applicable under these
provisions.
State Revenue Impact
According to the BOE, SB 808 may increase state revenues by
as much as $150 million annually.
Comments
1. Purpose of the bill . The author's office provided the
following statement on the bill. "This legislation would
incentive expanded health care coverage for airline workers
by requiring airlines to offer health care coverage for all
employees and their dependents if they want to utilize
California's fuel tax exemption.
The problem SB 808 seeks to address is the circumvention of
SB 808 -- 4/23/13 -- Page 4
local Living Wage Ordinances that currently require
employers to either pay a higher living wage or provide
health insurance. Although airlines typically provide
health care coverage for workers that are directly-employed
by the airline, workers performing contracted or
subcontracted services are less likely to receive health
benefits through their jobs.
This inequality is most evident in the outsourcing of
"airside" jobs such as cabin cleaning, baggage handling,
ramp operations, and cargo services. These subcontracted
workers are more likely to rely on the state's Medi-Cal
program for their health insurance, which is at the expense
of taxpayers.
As a matter of public policy, airlines that benefit from
the state's generous airline fuel tax subsidy should not
also benefit from the state shouldering the cost burden of
providing their workforce with health care coverage."
2. Priorities & taxes . SB 808 poses a policy question:
should the state and federal priority for workers to have
employer provided health insurance trump tax privileges
which come out of the general fund? Taxpayers reasonably
rely on the sales and use tax exemption in California as
they do in every other state in the country. Should the
penalty for not providing health care be the repeal of a
tax exemption or simply a penalty for not complying with
the law? Furthermore, it's difficult to determine what
effect this change will have on behavior: for example,
since most of these flights are coming and going to
destinations outside United States, would it be cheaper for
the airlines to bring in employees from other states or
countries to service the planes because the marginal costs
of providing healthcare is much higher than for an out of
state employee? Or, is the intent of the bill to include
all of these employees as well?
3. Income disparity . The sponsors of the bill are
concerned that the airlines have outsourced these "airside"
jobs which is increasing the income disparity in this
state. State and federal tax laws have long exacerbated
the income disparity in California and across the nation.
While this bill attempts to help workers get employer
provided health coverage while still getting paid in order
to pay rent and buy food, it may inadvertently
SB 808 -- 4/23/13 -- Page 5
significantly reduce their pay instead thus furthering the
income disparity even more. For example, the airlines may
hire multiple part time employees for whom they are not
obligated to provide health insurance to get around this
law; in that case a full time worker could arguably lose
half or more of his or her pay. Are the good intentions of
employer provided health care enough to justify a potential
pay cut for all airside workers? If the bill remedies the
loophole and requires that even part time employees must
receive coverage, would the airlines not hire anyone in
this state? The Committee may wish to consider amending
the bill to provide coverage for all employees, even those
that are part time.
4. Agency alphabet . BOE has no expertise in health
insurance. SB 808 should require that the Department of
Managed Health Care and Department of Insurance certify
that an employer is providing healthcare? The author may
wish to amend the bill in committee to allow Department of
Insurance or the Department of Managed Healthcare to
certify the insurance requirement.
5. What do you mean ? SB 808 leaves many terms undefined
and puts requirements on foreign companies' employees in
the foreign countries to likely avoid supplanting
California workers with those from out of state. In so
doing, however, the bill may be unenforceable unless it
focuses on employees in this state. The following issues
should be addressed in committee:
1. "Labor services," including contractors, are not
restricted to this state. The author should clarify
where the services are to take place to be exempt from
the sales and use tax.
2. If an airline contracts with a product supplier for
services, healthcare documentation is not required.
Does the author intend to apply the provisions of this
bill to suppliers as well?
3. The bill applies to domestic and foreign carriers
equally including the workers of each-does the author
intend for foreign companies to provide health
insurance in other countries? This should also be
clarified to apply to this state.
4. The bill does not specify the period of the
insurance documentation; is it for contracts that
begin immediately? What if contracts are for 6-months
but the bill requires health coverage for a full year?
SB 808 -- 4/23/13 -- Page 6
The author may wish to clarify the intent of short
term contracts.
5. The bill does not provide a remedy for companies
that do not provide health coverage at the reporting
period but provide it later; would they still be
precluded from the exemption?
Support and Opposition (5/2/13)
Support : Service Employees International Union (SEIU)
(sponsor); United Service Workers West, (sponsor).
Opposition : Airlines for America (A4A); BOE Member George
Runner; American Airlines; International Air Transport
Association; San Francisco Chamber of Commerce; Southwest
Airlines; United Airlines; US Airways; Virgin Atlantic.