BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNANCE AND FINANCE Senator Robert M. Hertzberg, Chair 2015 - 2016 Regular ------------------------------------------------------------------ |Bill No: |AB 1032 |Hearing |7/8/15 | | | |Date: | | |----------+---------------------------------+-----------+---------| |Author: |Salas |Tax Levy: |No | |----------+---------------------------------+-----------+---------| |Version: |2/26/15 |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant|Bouaziz | |: | | ----------------------------------------------------------------- DIESEL FUEL TAX LAW: REIMBURSEMENTS Provides for a refund of the excise tax paid on biodiesel that is blended with tax-exempt diesel fuel. Background and Existing Law Under the Diesel Fuel Tax Law, state law imposes a $0.11 per gallon tax upon the removal, entry, sale, delivery, or specified use of diesel fuel. The state collects the diesel excise tax when a tanker truck picks up the diesel from a refinery, when it is distributed at the terminal rack, or when it enters the state via truck or rail. Existing state law exempts diesel from the state excise tax if it is 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, it is dyed to make its illegal use on the 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 Board of Equalization (BOE), which processes and issues the refunds, typically as part of the taxpayer's annual return with the board. AB 1032 (Salas) Page 2 of ? Proposed Law Assembly Bill 1032 allows a diesel fuel tax refund to a supplier for the portion of tax paid on biodiesel fuel removed from the terminal rack as a dyed biodiesel blend. AB 1032 requires a supplier to show that the tax on that biodiesel fuel has been paid by the same supplier. State Revenue Impact BOE estimates fuel tax overpayments of $779,000 in fiscal year 2012-13, and $2.829 million in 2013-14. Comments 1. Purpose of the bill . According to the author, "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." 2. Issue at hand . 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 the state. Biodiesel that is produced in California, on the other hand, is generally AB 1032 (Salas) Page 3 of ? taxed upon removal from the fuel production facility. In either case, when another supplier makes a subsequent purchase of tax paid biodiesel to create a blended diesel fuel, the tax paid biodiesel fuel is blended with untaxed 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. However, some suppliers have been unable to obtain a credit or refund for taxes paid on biodiesel that enters the state, 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. AB 1032 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. 3. Related legislation. During the 2013-14 Legislative Session, the Assembly Committee on Revenue and Taxation introduced AB 2757, which contained provisions nearly identical to the present bill. AB 2757 passed the Assembly Floor by a vote of 76 to 0. However, in the Senate, 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 (Assembly Committee on Revenue and Taxation, 2014), which the Governor vetoed for unrelated provisions, dealing with the administration of property taxes. 4. Incoming! The Senate Transportation and Housing Committee approved AB 1032 by a vote of 11-0 on June 23, 2015. Assembly Actions Assembly Revenue and Taxation 9-0 Assembly Appropriations 17-0 Assembly Floor 80-0 Senate Transportation and Housing11-0 AB 1032 (Salas) Page 4 of ? Support and Opposition (7/2/15) Support : California Biodiesel Alliance; California Independent Oil Marketers Association. Opposition : Unknown. -- END --