BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 1032| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 1032 Author: Salas (D) Introduced:2/26/15 Vote: 21 SENATE TRANS. & HOUSING COMMITTEE: 11-0, 6/23/15 AYES: Beall, Cannella, Allen, Bates, Gaines, Galgiani, Leyva, McGuire, Mendoza, Roth, Wieckowski SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 7/8/15 AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach, Pavley SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/27/15 AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen ASSEMBLY FLOOR: 80-0, 6/1/15 - See last page for vote SUBJECT: Diesel Fuel Tax Law: reimbursements SOURCE: California Biodiesel Alliance DIGEST: This bill provides for a refund of the excise tax paid on biodiesel that is blended with tax-exempt diesel fuel. ANALYSIS: Existing law: AB 1032 Page 2 1)Defines biodiesel as 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. 2)Considers biodiesel to be a diesel fuel and subject to the excise tax on diesel fuel. Currently, the total excise tax paid on a gallon of diesel is 13 cents per gallon. 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. 3)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 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 Board of Equalization (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. 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 AB 1032 Page 3 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 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 of the tax from the BOE. Comments Purpose. According to the author, this bill provides a necessary and widely agreed upon solution to a tax policy oversight in existing law. According to the source, 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. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No According to the Senate Appropriations Committee, the 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. AB 1032 Page 4 SUPPORT: (Verified8/28/15) California Biodiesel Alliance (source) California Independent Oil Marketers Association OPPOSITION: (Verified 8/28/15) None received ASSEMBLY FLOOR: 80-0, 6/1/15 AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins Prepared by:Eric Thronson / T. & H. / (916) 651-4121 8/31/15 16:36:41 **** END ****