BILL ANALYSIS Ó
SENATE COMMITTEE ON TRANSPORTATION AND HOUSING
Senator Jim Beall, Chair
2015 - 2016 Regular
Bill No: AB 2127 Hearing Date: 6/21/2016
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|Author: |O'Donnell |
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|Version: |5/12/2016 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant|Manny Leon |
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SUBJECT: Taxation: motor vehicle fuel: use fuel: alcohol
fuels
DIGEST: This bill increases the allowable percentage of
gasoline or diesel fuel that may be included in blended alcohol
fuel from 15% to 18%, and makes corresponding changes to the
definition of "gasohol."
ANALYSIS:
Existing law:
1)Imposes, under the Motor Vehicle Fuel Tax (MVFT) Law, a tax
upon the privilege of distributing motor fuel.
2)Defines gasohol, for purposes of the MVFT, to mean all blends
of gasoline and alcohol containing more than 15% gasoline.
3)Imposes, under the Use Fuel Tax (UFT) Law, an excise tax of
$0.18 per gallon on use fuels.
4)Defines fuel, for purposes of the UFT Law, to include any
combustible gas or liquid used in an internal combustion
engine for propulsion on the highway, except fuel subject to
taxation under the MVFT Law or the Diesel Fuel Tax Law.
AB 2127 (O'Donnell) Page 2 of ?
5)Provides that the excise tax imposed upon ethanol or methanol
containing no more than 15% gasoline or diesel fuels shall be
one-half the rate (i.e., $0.09) prescribed by existing law
(i.e., $.18) for each gallon of fuel used.
6)Charges the State Air Resources Board (CARB) with adopting and
implementing motor vehicle emission standards, in-use
performance standards, and motor vehicle fuel specifications
for the control of air contaminants and sources of air
pollution, as specified.
7)Charges CARB with engaging in efforts to achieve the maximum
degree of emission reduction possible from vehicular and other
mobile sources in order to accomplish the attainment of the
state standards at the earliest practicable date.
This bill:
1)Redefines the term gasohol, for purposes of MVFT Law, as all
blends of gasoline and alcohol containing more than 18%
gasoline (instead of 15% per current law).
2)Provides that blended alcohol fuel containing no more than 18%
gasoline or diesel fuels (instead of the existing15% gasoline
or diesel fuels) qualifies to be levied at $.09 for each
gallon of fuel used (i.e., one-half the existing rate of
$.18).
3)Provides that the increased blended percentages specified in
this bill are to remain in effect for five years and become
inoperative on January 1, 2022.
4)Takes immediate effect as a tax levy.
COMMENTS:
AB 2127 (O'Donnell) Page 3 of ?
1)Purpose. The author notes, "Currently, the tax code and air
resource protection requirements have conflicting
specifications for blended ethanol fuels. Specifically, the
tax code charges half the normal UFT rate on ethanol fuels
containing no more than 15 % gasoline. However, the CARB has
set specifications for E-85 (a common type of blended ethanol
fuel) requiring the total fuel volume to contain a minimum of
15% of hydrocarbons (e.g., gasoline). This means the minimum
gasoline content required by the ARB is the maximum content
allowable to qualify for the tax incentive. Due to this
conflict, fuel marketers have difficulties recouping the
excise tax paid on E-85 blends to reflect the lower tax rate
allowed for such alternative fuels. AB 2127 remedies this
conflict."
2)Alcohol fuel blends. Alcohol fuel blends are the result of
blending two components: ethanol or methanol fuel and gasoline
or diesel fuel. E-85, for example, is produced by blending
ethanol fuel and gasoline. The preferential excise tax rate
for alcohol blends was originally established in 1981.
Proponents of alcohol fuel blends argue these preferential
rates (i.e., lower rates) were primarily interested in
stimulating alcohol-fuel production and sale. Specifically,
an increase in alcohol-fuel production could potentially
reduce imported oil, create market parity by matching tax
rates to alcohol fuels lower BTU output, and promote
Californian agricultural products used in creating alcohol
fuels.
3)UFT Law. The UFT Law sets the excise tax rate for ethanol and
methanol containing no more than 15% gasoline or diesel at
one-half the normal rate specified by existing law (i.e.,
$0.09 per gallon instead of $0.18 per gallon). Ethanol and
methanol containing more than 15% gasoline is defined as
gasohol under the MVFT Law (see section below). While the UFT
is technically imposed on the use of fuel, the vendor who
sells or delivers such fuel into a fuel tank must, at the time
of sale, collect the tax from the user and provide a receipt.
AB 2127 (O'Donnell) Page 4 of ?
Vendors are required to have permits with the Board of
Equalization (BOE) and file returns. A use fuel vendor's
responsibilities include reporting and paying the use fuel tax
on alcohol fuels, including E-85, delivered into motor vehicle
fuel tanks. Specifically, the vendor is required to collect
and remit to the BOE the $0.09 per gallon use fuel tax on the
full volume of E-85 sold or dispensed from a retail pump.
4)MVFT Law. The state imposes an excise tax under the MVFT Law
of $0.30 per gallon on the removal of gasoline (except for
aviation gasoline) at the refinery or terminal rack, upon
entry into California, and upon sale to an unlicensed person.
Refunds of the excise tax paid on gasoline are allowed under
certain circumstances to certain persons. For example, in
this instance, a refund is allowed to any person who buys
gasoline to produce a blended fuel used to operate a motor
vehicle on the state's highways when that blended fuel is
taxed as a use fuel.
5)Wiggle room. Both the author and sponsors of this bill argue
that due to the complexity of producing blended alcohol fuel
(E-85 in particular) and various CARB regulations, the process
of producing blended alcohol fuel that is precisely 15%
gasoline and 85% ethanol is very difficult. In order to
qualify for the $.09/gallon user tax exemption, a blended fuel
must be comprised of 85% ethanol. However, many times these
blends slightly exceed the 15%/85% ratio, which disqualifies
the producer from the $.09/gallon exemption. This bill will
provide blended-alcohol fuel producers with the flexibility to
still qualify for the $.09/gallon rate and remain in
compliance with various CARB regulations and statutes.
6)Double-referral. This bill is also referred to the Senate
Committee on Governance and Finance.
Related Legislation:
AB 1442 (O'Donnell, 2015) - would have increased the allowable
percentage of gasoline that may be included in E-85 from 15% to
21% and makes corresponding changes to the definition of
gasohol. This bill was held on suspense in the Assembly Revenue
AB 2127 (O'Donnell) Page 5 of ?
and Taxation Committee.
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes
Local: No
Assembly votes:
Floor: 67-0
Appr: 20-0
Rev&Tax: 9-0
POSITIONS: (Communicated to the committee before noon on
Wednesday,
June 15, 2016.)
SUPPORT:
California Independent Oil Marketers Association (sponsor)
Propel Fuels
OPPOSITION:
None received
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