BILL ANALYSIS Ó
AB 1032
Page 1
Date of Hearing: April 27, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 1032
(Salas) - As Introduced February 26, 2015
SUSPENSE
Majority vote. Fiscal committee.
SUBJECT: Diesel Fuel Tax Law: reimbursements
SUMMARY: Provides that, where tax is not imposed on dyed
blended biodiesel fuel upon removal from the terminal rack, if
tax was previously imposed on the biodiesel fuel portion, then a
claim for refund is allowed for the tax paid on that biodiesel
fuel. Specifically, this bill:
1)Provides that the claim for refund shall only be allowed to
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the extent a supplier can show that the tax on that biodiesel
fuel has been paid by the same supplier.
2)Makes other technical and conforming changes to the Diesel
Fuel Tax Law.
EXISTING LAW:
1)Imposes a tax, under the Diesel Fuel Tax Law, upon the
removal, entry, sale, delivery, or specified use of diesel
fuel, at a specified rate per gallon.
2)Provides for a reimbursement of the amount of the tax to
persons who have used tax-paid fuel for specified nontaxable
uses, which is allowed through a claim for refund.
FISCAL EFFECT: The State Board of Equalization (BOE) estimates
that this bill would have resulted in roughly $779,000 in
refunds in fiscal year (FY) 2012-13, and roughly $2.83 million
in FY 2013-14.
COMMENTS:
1)The author has provided the following statement in support of
this bill:
The Diesel Fuel Tax Law imposes a per gallon tax upon the
removal, entry, sale, or delivery of diesel fuel. The law
allows for an exemption (via tax refund) when diesel is
dyed and intended for off-highway use such as for machinery
and equipment used for farming, mining, logging, and
construction.
Biodiesel, often sold when blended with traditional
petroleum diesel, is considered to be a diesel fuel and
subject to the same taxes. Therefore, biodiesel is taxed
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upon its entry into California or its removal from a
refinery or distribution facility. However, when the
tax-paid biodiesel is blended with tax-exempt diesel fuel,
the biodiesel portion is not provided the same tax exempt
status for off-highway uses. [. . .]
While current law allows reimbursement for tax paid on
diesel fuel intended for off-highway uses that has been
taxed more than once, it does not account for tax-paid
biodiesel blends. In such cases, the supplier is unable to
recover the tax from the customer and is also unable to
seek reimbursement for the tax from the Board of
Equalization.
AB 1032 seeks to remedy this by creating a refund mechanism
for amounts of tax paid on the biodiesel fuel portion of
dyed blended biodiesel fuel removed from an approved
refinery or distribution facility if a supplier can show
that the tax on that biodiesel fuel has been paid by the
same supplier.
2)Proponents of this bill note the following:
AB 1032 would help level the playing field for biodiesel in
California. The Diesel Fuel Tax Law, which imposes a tax
on diesel fuel, currently provides for a reimbursement for
the amount of that tax to entities who have used that
tax-paid fuel in certain nontaxable uses. However, because
clear biodiesel is currently transported to terminals for
blending by truck rather than pipeline, biodiesel
producers, who have paid the Diesel Fuel excise or "road
tax," must charge the refiner/blenders for the tax, and the
refiner/blender is not currently able to recoup the funds
for the tax paid on the biodiesel fuel portion of dyed
blended diesel fuel removed from the terminal. We believe
that allowing for a reimbursement (through a claim for
refund), when the supplier can show that they have paid the
tax on that biodiesel removed from an approved terminal, is
a necessary and widely agreed upon solution to this
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problem.
3)The BOE notes the following in its staff analysis of this
bill:
The BOE would not have any administrative issues with the
refund provisions. The BOE administers all provisions of
the [Diesel Fuel Tax Law], including the exemption and
refund provisions. BOE staff works closely with the fuel
industry to remain aware of industry trends and practices,
and provides information and assistance in the form of
special notices, publications and reports, answers to
frequently asked questions, and newsletters. The BOE has
previously provided guidance to suppliers that refunds are
not allowed for tax-paid biodiesel fuel converted to dyed
biodiesel fuel.
4)Committee Staff Comments:
a) The Diesel Fuel Tax Law : Under the Diesel Fuel Tax Law,
a per-gallon excise tax is imposed on the removal of diesel
fuel at the refinery or terminal rack, upon entry into
California, or upon sale to an unlicensed person.
Existing law defines a "terminal" as a distribution
facility supplied by pipeline or vessel, from which the
diesel fuel may be removed at the rack. The term also
includes a diesel fuel production facility (i.e., a
refinery) with storage facilities not supplied by pipeline
or vessel. These diesel fuel production facilities have
the same licensing and reporting requirements as those
terminals supplied by pipeline or vessel.
Generally, a "supplier" of diesel fuel owes the excise tax
at the time the fuel is removed from the terminal rack.
However, if the diesel fuel enters California outside of
the bulk transfer/terminal system (i.e., "below the rack"
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by train or truck), the excise tax is due upon entry into
California.
The term "supplier" includes, among others, a person owning
fuel in a terminal (i.e., a "position holder"), a refiner,
an importer, a blender, and a terminal operator. The BOE
requires suppliers to be licensed and to file monthly
returns or information reports detailing the amount of fuel
entered, received, removed, and stored.
b) Exemptions and refunds : Certain sales by diesel fuel
suppliers are exempt from the excise tax, including sales
for use outside California, and sales of dyed diesel fuel.
Thus, certain parties may claim a credit or refund for tax
paid on fuel that is subsequently used in a nontaxable
manner.
c) Biodiesel : Under California law, biodiesel is
considered to be a diesel fuel and is subject to the excise
tax on diesel fuel. The fuel industry generally describes
biodiesel according to the applicable percentage of
biodiesel blended with petroleum diesel. For example, "B5"
would represent a blend comprised of 95% petroleum diesel
and 5% biodiesel.
Most domestically produced biodiesel comes from the
Midwest. Because distribution of this biodiesel occurs
outside of the normal bulk transfer/terminal system, the
excise tax applies upon the fuel's entry into California.
As such, the "enterer" is responsible for the diesel fuel
tax when the fuel enters California. Biodiesel that is
produced in California, on the other hand, is generally
taxed upon removal from the fuel production facility.
In either case, when another supplier makes a subsequent
purchase of this tax-paid biodiesel to create a blended
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diesel fuel, the tax-paid biodiesel fuel is blended with
"ex-tax" diesel fuel. When this blended fuel is
subsequently removed from the terminal rack, it results in
tax being assessed twice on the biodiesel portion. In such
cases, the state allows the supplier to claim a credit on
their return.
Some suppliers, however, have been unable to obtain a
credit or refund for taxes paid on biodiesel that enters
California, or is produced in-state, and is delivered into
their terminals as tax-paid, but is subsequently removed at
the terminal rack for a nontaxable purpose. In other
words, while current law allows reimbursement for tax paid
on diesel fuel that has been taxed more than once, the
current statutory regime does not account for tax-paid
diesel fuel that is taxed coming into the terminal but
removed for nontaxable purposes (i.e., dyed biodiesel
blends). In such cases, the supplier is unable to recover
the tax from the customer and is also unable to seek
reimbursement for the tax from the BOE. Since the tax-paid
biodiesel portion is blended with ex-tax dyed diesel fuel,
it is not subject to taxation when removed from the
terminal rack. Because there is no subsequent taxable
event with which to claim the credit, the current statute
does not provide for a reimbursement of the tax-paid
portion of the biodiesel.
d) What would this bill do ? This bill allows a diesel fuel
tax refund to a supplier for that portion of tax-paid
biodiesel fuel removed from the terminal rack as a dyed
biodiesel blend.
e) Why does this all seem so familiar ? During the 2013-14
Legislative Session, this Committee introduced AB 2757
(Committee on Revenue and Taxation), which contained
provisions substantially identical to the present bill. AB
2757 passed the Assembly Floor by a vote of 76 to 0. In
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the Senate, however, AB 2757 was substantially amended and
the tax-related provisions were removed from the bill. The
diesel fuel provisions were then added to AB 2756
(Committee on Revenue and Taxation), which the Governor
vetoed for unrelated provisions dealing with the
administration of property taxes.
REGISTERED SUPPORT / OPPOSITION:
Support
California Biodiesel Alliance
California Independent Oil Marketers Association
Opposition
None on file
Analysis Prepared by:M. David Ruff / REV. & TAX. / (916)
319-2098
AB 1032
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