BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2127|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
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THIRD READING
Bill No: AB 2127
Author: O'Donnell (D) and Brough (R)
Amended: 5/12/16 in Assembly
Vote: 27
SENATE TRANS. & HOUSING COMMITTEE: 11-0, 6/21/16
AYES: Beall, Cannella, Allen, Bates, Gaines, Galgiani, Leyva,
McGuire, Mendoza, Roth, Wieckowski
SENATE GOVERNANCE & FIN. COMMITTEE: 5-1, 6/29/16
AYES: Hertzberg, Beall, Hernandez, Lara, Moorlach
NOES: Nguyen
NO VOTE RECORDED: Pavley
SENATE APPROPRIATIONS COMMITTEE: 6-0, 8/1/16
AYES: Lara, Beall, Hill, McGuire, Mendoza, Nielsen
NO VOTE RECORDED: Bates
ASSEMBLY FLOOR: 67-0, 5/27/16 (Consent) - See last page for
vote
SUBJECT: Taxation: motor vehicle fuel: use fuel: alcohol
fuels
SOURCE: California Independent Oil Marketers Association
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:
AB 2127
Page 2
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.
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., $0.18) for each gallon of fuel used.
6)Charges the California 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
AB 2127
Page 3
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 existing 15% gasoline
or diesel fuels) qualifies to be levied at $0.09 for each
gallon of fuel used (i.e., one-half the existing rate of
$0.18).
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
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 CARB 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
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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
California 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.
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.
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5)Wiggle room. Both the author and sponsor 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 $0.09/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 $0.09/gallon exemption.
This bill will provide blended-alcohol fuel producers with the
flexibility to still qualify for the $0.09/gallon rate and
remain in compliance with various CARB regulations and
statutes.
FISCAL EFFECT: Appropriation: No Fiscal Com.: YesLocal:
No
According to the Senate Appropriations Committee, 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. BOE indicates that any administrative costs
would be absorbable (General Fund).
SUPPORT: (Verified 8/2/16)
California Independent Oil Marketers Association (source)
POET LLC
Propel Fuels
OPPOSITION: (Verified8/2/16)
California Department of Finance
California Tax Reform Association
ASSEMBLY FLOOR: 67-0, 5/27/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bigelow, Bonilla, Bonta, Burke, Calderon, Campos, Chang, Chau,
AB 2127
Page 6
Chávez, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Eggman,
Frazier, Beth Gaines, Gallagher, Cristina Garcia, Gatto,
Gipson, Gomez, Gonzalez, Gordon, Gray, Harper, Roger
Hernández, Holden, Irwin, Jones, Kim, Lackey, Levine, Linder,
Lopez, Maienschein, Mathis, Mayes, McCarty, Medina, Mullin,
Nazarian, Obernolte, Olsen, Patterson, Quirk, Ridley-Thomas,
Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond,
Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon
NO VOTE RECORDED: Bloom, Brough, Brown, Chiu, Dodd, Eduardo
Garcia, Grove, Hadley, Jones-Sawyer, Low, Melendez, O'Donnell,
Ting
Prepared by:Manny Leon / T. & H. / (916) 651-4121
8/3/16 18:56:57
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