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
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|Version: May 12, 2016 |Policy Vote: T.&H. 11 - 0, GOV. |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 1, 2016 |Consultant: Mark McKenzie |
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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
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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
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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.
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