BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 2127 |Hearing |6/29/16 |
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|Author: |O'Donnell |Tax Levy: |Yes |
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|Version: |5/12/16 |Fiscal: |Yes |
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|Consultant|Bouaziz |
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Taxation: motor vehicle fuel: use fuel: alcohol fuels
Increases the allowable percentage of gasoline that may be
included into ethanol fuel, from 15% to 18%.
Background
The Motor Vehicle Fuel Tax (MVFT) Law imposes a $0.30 per gallon
excise tax for the privilege of distributing motor fuel. Under
existing law, "gasohol" fuel, defined as all blends of gasoline
and alcohol containing more than 15% gasoline, is subject to the
$0.30 per gallon excise tax, whereas blends of gasoline and
alcohol containing less than 15% gasoline is subject to the Use
Fuel Tax (UFT) Law.
UFT Law imposes an excise tax of $0.18 per gallon on fuel used.
The law defines "fuel" to include any combustible gas or liquid
used in an internal combustion engine for propulsion on the
highway except fuel taxed as a motor vehicle fuel (gasoline) or
diesel fuel. UFT Law also defines gasohol as all blends of
gasoline and alcohol containing more than 15% gasoline. An
exception to the rate of $0.18 per gallon is the $0.09 per
gallon rate imposed on ethanol and methanol blends containing up
to 15% gasoline, known as an E85 blend.
Assembly Bill 2127 seeks to change the definition of gasohol to
mean all blends of gasoline and alcohol containing more than 18%
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gasoline, so that gasohol blends with 18% or less gasoline
qualify for the reduced excise tax rate.
Proposed Law
Assembly Bill 2127 increases the allowable percentage of
gasoline that may be included in E85, from 15% to 18%.
Specifically, this bill:
Redefines the term gasohol, for purposes of the MVFT
Law, as all blends of gasoline and alcohol containing more
than 18% gasoline.
Provides that the excise tax imposed upon ethanol or
methanol containing no more than 18% gasoline or diesel
fuels shall be one-half the excise tax of $0.18 per gallon
on fuel used.
Takes immediate effect as a tax levy and remain in
effect until January 1, 2022.
State Revenue Impact
According to the Board of Equalization (BOE) the total revenue
loss is estimated to be roughly $98,000 annually.
Comments
1. Purpose of the bill. According to the author "In order to
ensure effective policy, the Legislature should ensure our laws
and regulations remain consistent in both language and intent.
Currently, the tax code and air resource protection requirements
have conflicting specifications for blended ethanol fuels.
Specifically, the tax code charges half the normal Use Fuel Tax
rate on ethanol fuels containing no more than 15 percent
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gasoline. However, the Air Resources Board 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 resolves this conflict and allows
E-85 purchases to collect on past owed tax refunds."
2. E85. E85 fuel is derived from blending ethanol fuel and
gasoline. Typically, gasoline represents 15% of the blended
product. However, the actual percentage may vary. Current
California Air Resources Board (CARB) standards specify that
allowable percentage of gasoline in E85 is a range of 15 to 21%.
While CARB standards establish an acceptable range of the E85
share that can be gasoline, existing state tax law is more
restrictive. The UFT Law sets the excise tax rate for fuels.
Vendors that sell fuel placed in the tank of motor vehicles,
such as retailers and wholesalers, are charged the excise tax.
UFT Law sets the excise tax rate for ethanol and methanol
containing no more than 15% gasoline at a lower rate, even
though E85 may consist of more than 15% gasoline if CARB
standards are followed. The MVFT Law similarly has a more
restrictive definition of E85. The MVFT is imposed on each
gallon of fuel entered into, or removed from a refinery or
terminal rack in, California. The tax is typically paid by
blenders and refiners. The MVFT Law defines ethanol and
methanol containing more than 15% gasoline as "gasohol" rather
than a blended fuel like E85.
3. Blended fuel. Under existing law, a gasoline tax refund is
allowed to any person who buys and uses gasoline for the
purposes of producing a blended fuel, such as E85, when that
fuel is taxed as a use fuel. In other words, a blender can get a
reimbursement of the portion of the fuel that is taxed as
gasoline prior to blending. For example, under MVFT Law, the
tax rate prior to blending for an E85 blend is $0.30 per gallon,
but once blended the rate is $0.09 per gallon, which entitles
the purchaser to a refund for the difference between the $0.30
per gallon and $0.09 per gallon rate.
3. Related legislation. AB 1442 (O'Donnell) would have
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increased the allowable percentage of gasoline that may be
included in E85, from 15% to 21%, and would have made
corresponding changes to the definition of gasohol. AB 1442 was
held on the Assembly Committee on Revenue and Taxation's
Suspense File.
4. Incoming! The Senate Transportation and Housing Committee
approved AB 2127 by a vote of 11-0 on June 21, 2016.
Assembly Actions
Assembly Revenue and Taxation 9-0
Assembly Appropriations 20-0
Assembly Floor 67-0
Support and
Opposition (6/23/16)
Support : California Independent Oil Marketers Association; POET
LLC; Propel Fuels.
Opposition : California Department of Finance; California Tax
Reform Association.
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