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 |
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|Author: |Salas |Tax Levy: |No |
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|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.
AB 1032 (Salas) Page 2
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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
AB 1032 (Salas) Page 3
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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
AB 1032 (Salas) Page 4
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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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