BILL ANALYSIS                                                                                                                                                                                                    Ó






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                                   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:









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          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  







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          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.








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          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


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