BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session AB 2127 (O'Donnell) - Taxation: motor vehicle fuel: use fuel: alcohol fuels ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: May 12, 2016 |Policy Vote: T.&H. 11 - 0, GOV. | | | & F. 5 - 1 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: August 1, 2016 |Consultant: Mark McKenzie | | | | ----------------------------------------------------------------- This bill does not meet the criteria for referral to the Suspense File. Bill Summary: AB 2127 would increase the allowable percentage of gasoline that may be included in E85 fuel blend from 15% to 18%, and make a corresponding change to the definition of "gasohol" to mean all blends of gasoline and alcohol that contain more than 18% gasoline (instead of 15%). These changes would only remain in effect until January 1, 2022. Fiscal Impact: The Board of Equalization (BOE) estimates net revenue losses could be in the range of $80,000 to $114,000 annually for five years (Motor Vehicle Fuel Account). These figures account for both reduced excise tax revenues and increased refunds. (see staff comments) AB 2127 (O'Donnell) Page 1 of ? BOE indicates that any administrative costs would be absorbable. (General Fund) Background: The Motor Vehicle Fuel Tax (MVFT) Law imposes a $0.30 per gallon excise tax for the privilege of distributing motor fuel. The tax is imposed on the removal of gasoline at the refinery or terminal rack when it enters the state and upon sale to an unlicensed person. 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. Existing law provides for a refund of the gasoline excise tax if a 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. For instance, a fuel blender who purchases fuel at the refinery or terminal rack and pays the $0.30 per gallon excise tax, then blends the gasoline "below the rack" and sells it as E85, where it is taxed at the UFT rate of $0.09 per gallon, is eligible for a refund on the difference between the $0.30 and $0.09 per gallon rate. Proposed Law: AB 2127 would increase the allowable percentage of gasoline that may be included in E85 fuels from 15% to 18% for five years. Specifically, this bill would: Revise the definition of "gasohol" for purposes of the MVFT Law to mean all blends of gasoline, and alcohol containing more than 18% of gasoline (from 15%) until January 1, 2022. AB 2127 (O'Donnell) Page 2 of ? Specify that the excise tax imposed on ethanol or methanol containing no more than 18% gasoline or diesel fuels (rather than 15%) shall be half the amount imposed on fuel used, for purposes of the UFT Law, until January 1, 2022. Related Legislation: AB 1442 (O'Donnell), which was held on the Assembly Revenue and Taxation Committee's Suspense File last year, would have increased the allowable percentage of gasoline that may be included in E85 from 15% to 21%, and make corresponding changes to the definition of gasohol. Staff Comments: This bill would increase the allowable percentage of gasoline that may be included in an E85 fuel blend from 15% to 18%. This would result in both an increase in amounts E85 fuels that can be taxed at the discounted UFT rate of $0.09 per gallon (instead of $0.18 per gallon) and an increase in refunds of MVF taxes paid by blenders. As the amount of gasoline blended into E85 increases, the state experiences a revenue loss from decreased UFT tax revenues. This also increases the amount of refunds to blenders. Using historical E85 blended fuel volumes from the past three fiscal years, the BOE estimates combined revenue losses (from both increased refunds and decreased gas tax revenues) of $79,456 in 2012-13, $113,858 in 2013-14, and $102,093 in 2014-15, or an average loss of about $98,000 annually. To the extent the industry changes production methods and volumes and blends more E85 at the rack, rather than below the rack, the revenue impacts could grow. -- END -- AB 2127 (O'Donnell) Page 3 of ?