BILL ANALYSIS Ó
SENATE COMMITTEE ON TRANSPORTATION AND HOUSING
Senator Jim Beall, Chair
2015 - 2016 Regular
Bill No: AB 1032 Hearing Date: 6/23/2015
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|Author: |Salas |
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|Version: |2/26/2015 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant|Eric Thronson |
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SUBJECT: Diesel Fuel Tax Law: reimbursements
DIGEST: This bill provides for a refund of the excise tax paid
on biodiesel that is blended with tax-exempt diesel fuel.
ANALYSIS:
Biodiesel is an alternative vehicle fuel that contains no
petroleum and is produced from renewable resources, such as palm
oil or used vegetable oil. If biodiesel is combined with
petroleum diesel, the resulting fuel is referred to as Bxx where
xx equals the percentage of biodiesel in the fuel. Thus, B5
refers to fuel that is 5% renewable diesel and 95% petroleum
diesel.
Under California law, biodiesel is considered to be a diesel
fuel and is subject to the excise tax on diesel fuel.
Currently, the total excise tax paid on a gallon of diesel is 11
cents per gallon and on July 1 of this year will be 13 cents.
State law, known as the "gas tax swap," requires the State Board
of Equalization (BOE) to adjust annually the excise tax on
diesel.
Typically, the state collects the diesel excise tax when a
tanker truck picks up the diesel from a refinery or distribution
terminal (known as "the rack") or when it enters the state via
truck or rail.
Existing law exempts diesel from the state excise tax if it is
AB 1032 (Salas) Page 2 of ?
used for purposes other than operating motor vehicles upon the
public streets and highways and a very few limited on-highway
uses. When diesel fuel is not taxed at the rack, then it is
dyed to make its illegal use on road easier for law enforcement
to discover. Untaxed diesel is often referred to as dyed
diesel.
Those who buy taxed diesel, but do not use it for a taxable
purpose, are eligible for a refund of the amount of tax paid.
To receive the refund, a taxpayer applies to the BOE, which
processes and issues the refunds, typically as part of the
taxpayer's annual return with the board.
This bill makes a supplier of dyed biodiesel eligible for a
refund of the diesel excise tax that the supplier paid prior to
the biodiesel being blended with dyed diesel and removed from
the rack as tax-exempt.
COMMENTS:
1)Purpose. According to the author, this bill provides a
necessary and widely agreed upon solution to a tax policy
oversight in existing law.
2)Background. Most domestically produced biodiesel comes from
the Midwest. Typically, 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 the
state. 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 - B5 for example - the tax-paid biodiesel fuel is blended
with 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.
If, however, it is blended with tax-exempt (i.e., dyed) diesel
fuel, then it leaves the rack without paying the excise tax.
In this case, suppliers have been unable to obtain a credit or
refund for taxes paid on that biodiesel. In other words,
while current law allows reimbursement for tax paid on diesel
AB 1032 (Salas) Page 3 of ?
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.
According to the sponsor, this bill helps level the playing
field for biodiesel in the state. The biodiesel industry
estimates that the current problem in existing law may be
effectively preventing biodiesel from being blended into
15-30% of the diesel volume in the state. This bill will
remove the tax hurdle and presumably increase the amount of
biodiesel used in California.
3)Double-referral. The Rules Committee has referred this bill
to both this committee and the Governance and Finance
Committee. Therefore, if the bill passes this committee, it
will be referred to the Committee on Governance and Finance.
Related Legislation:
AB 2757 (Bocanegra, Statutes of 2014) - identical to this bill,
provided for a refund of the excise tax paid on biodiesel that
is blended with tax-exempt diesel fuel. AB 2757 was unanimously
approved by this committee on June 16, 2014, before it was
gut-and-amended to address an unrelated issue.
AB 2756 (Assembly Committee on Revenue and Taxation, Statutes of
2014) - initially involved certification of county assessors,
but was amended to include the language in this bill late in the
session. AB 2756 was vetoed by the governor; the veto message,
however, related only to the assessor language and not to
content of this bill.
Assembly Votes:
Floor: 80-0
Appr: 17-0
R&T: 9-0
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes
Local: No
AB 1032 (Salas) Page 4 of ?
POSITIONS: (Communicated to the committee before noon on
Wednesday,
June 17, 2015.)
SUPPORT:
California Biodiesel Alliance
California Independent Oil Marketers Association
OPPOSITION:
None received
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