BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 1032 (Salas) - Diesel Fuel Tax Law: reimbursements.
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|Version: February 26, 2015 |Policy Vote: T. & H. 11 - 0, |
| | GOV. & F. 7 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 17, 2015 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 1032 would provide for a diesel tax refund to a
supplier for the portion of biodiesel fuel removed from the
terminal rack that is used for nontaxable purposes.
Fiscal Impact: The Board of Equalization (BOE) estimates that
the overpayment of diesel fuel tax was $779,000 in 2012-13, and
$2.8 million in 2013-14 (special fund); projections for future
years when the bill would be in effect are not available. BOE
indicates that administrative costs are absorbable.
Background: Under current law, a per-gallon excise tax is
imposed on the removal of diesel fuel (1) at the refinery or
terminal rack, (2) upon entry into California, or (3) upon sale
to an unlicensed person. Current 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
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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.
Under current law, biodiesel is considered to be a diesel fuel
and is subject to its excise tax. 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 percent petroleum diesel
and 5 percent 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 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 tax return.
Some suppliers, however, 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, it 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 BOE. Since the tax-paid biodiesel portion is blended with
ex-tax dyed diesel fuel, it is not subject to taxation when
AB 1032 (Salas) Page 2 of
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removed from the terminal rack. Because there is no subsequent
taxable event with which to claim the credit, current law does
not provide for a reimbursement of the tax-paid portion of the
biodiesel portion.
Proposed Law: This bill would provide for a diesel tax refund to
a supplier for that portion of biodiesel fuel removed from the
terminal rack as a dyed biodiesel fuel.
Staff Comments: By eliminating the double tax related to
biodiesel fuel, this bill would encourage its use relative to
traditional diesel fuel. BOE's revenue estimate utilizes actual
data from 2012-13 and 2013-14. The bill would take effect on
January 1, 2016; given projected growth of the biodiesel fuel
industry, actual future refund amounts are likely to be higher.
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