BILL ANALYSIS Ó
AB 1032
Page 1
ASSEMBLY THIRD READING
AB
1032 (Salas)
As Introduced February 26, 2015
Majority vote
------------------------------------------------------------------
|Committee |Votes |Ayes |Noes |
| | | | |
| | | | |
|----------------+------+--------------------+---------------------|
|Revenue & |9-0 |Ting, Brough, | |
|Taxation | |Dababneh, Gipson, | |
| | |Roger Hernández, | |
| | |Mullin, Patterson, | |
| | |Quirk, Wagner | |
| | | | |
|----------------+------+--------------------+---------------------|
|Appropriations |17-0 |Gomez, Bigelow, | |
| | |Bonta, Calderon, | |
| | |Chang, Daly, | |
| | |Eggman, Gallagher, | |
| | | | |
| | | | |
| | |Eduardo Garcia, | |
| | |Gordon, Holden, | |
| | |Jones, Quirk, | |
| | |Rendon, Wagner, | |
| | |Weber, Wood | |
| | | | |
| | | | |
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AB 1032
Page 2
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 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: According to the Assembly Appropriations
Committee:
1)Minor and absorbable administrative costs to the Board of
Equalization (BOE).
2)Had this bill been in effect the previous two fiscal years,
estimated General Fund refunds for overpayment of diesel tax
AB 1032
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fuel would have been $779,000 and $2,829,000 for Fiscal Year
(FY) 2012-13 and FY 2013-14, respectively.
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 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
AB 1032
Page 4
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)Committee 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" 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.
AB 1032
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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
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
AB 1032
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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.
Analysis Prepared by:
M. David Ruff / REV. & TAX. / (916) 319-2098 FN:
0000662