BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON GOVERNANCE AND FINANCE
                         Senator Robert M. Hertzberg, Chair
                                2015 - 2016  Regular 

                              
          
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          |Bill No:  |AB 1032                          |Hearing    |7/8/15   |
          |          |                                 |Date:      |         |
          |----------+---------------------------------+-----------+---------|
          |Author:   |Salas                            |Tax Levy:  |No       |
          |----------+---------------------------------+-----------+---------|
          |Version:  |2/26/15                          |Fiscal:    |Yes      |
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          |Consultant|Bouaziz                                               |
          |:         |                                                      |
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                         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.







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           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  








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          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








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           Support and  
          Opposition   (7/2/15)


           Support  :  California Biodiesel Alliance; California Independent  
          Oil Marketers Association.


           Opposition  :  Unknown.




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