BILL ANALYSIS Ó
SB 321
Page 1
SENATE THIRD READING
SB
321 (Beall)
As Amended August 18, 2015
Majority vote
SENATE VOTE: 40-0
------------------------------------------------------------------
|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Revenue & |9-0 |Ting, Brough, | |
|Taxation | |Dababneh, Gipson, | |
| | |Roger Hernández, | |
| | |Mullin, Patterson, | |
| | |Quirk, Wagner | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |17-0 |Gomez, Bigelow, | |
| | |Bloom, Bonta, | |
| | |Calderon, Chang, | |
| | |Gordon, Eggman, | |
| | |Gallagher, Eduardo | |
| | |Garcia, Holden, | |
| | |Jones, Quirk, Rendon, | |
| | |Wagner, Weber, Wood | |
| | | | |
| | | | |
SB 321
Page 2
------------------------------------------------------------------
SUMMARY: Modifies the method by which the State Board of
Equalization (BOE) annually adjusts the motor vehicle "fuel tax
swap" rate to take into account a five-year average of fuel
prices, thereby smoothing perceived revenue volatility.
Specifically, this bill:
1)Provides, for the 2016-17 fiscal year (FY) and each FY
thereafter, the BOE shall, on or before March 1 of the FY
immediately preceding the applicable FY, adjust the motor
vehicle fuel excise tax rate so as to generate revenues equal
to the amount of revenue loss attributable to the partial
sales and use tax (SUT) exemption provided by Revenue and
Taxation Code (R&TC) Section 6357.7, based on estimates made
by the BOE reflecting the combined average of the actual fuel
price over the previous four FYs and the estimated fuel price
for the current FY, and that rate shall be effective during
the state's next FY.
2)Provides legislative intent that the amendments made by this
bill shall not produce a net revenue gain in state taxes.
EXISTING LAW:
1)Defines "motor vehicle fuel" under the Motor Vehicle Fuel Tax
(MVFT) Law as gasoline and aviation gasoline. (R&TC Section
7326.) The term does not include jet fuel, diesel fuel,
kerosene, liquefied petroleum gas, natural gas in liquid or
gasesous form, alcohol, or racing fuel.
2)Imposes, under the MVFT Law, an excise tax upon each gallon of
fuel.
SB 321
Page 3
3)Provides, on and after July 1, 2010, a partial SUT exemption
for "motor vehicle fuel", as defined in R&TC Section 7326.
4)Provides for the annual adjustment of the MVFT excise tax
rate. Specifically, for the 2011-12 FY and each FY
thereafter, the BOE must adjust the rate so as to generate
revenues equalling the amount of revenue loss attibutable to
the partial SUT exemption for motor vehicle fuel. This
calculation is made annually by March 1, based on estimates
made by the BOE, and the adjusted rate applies to the
immediately following FY.
5)Provides for a "true up" process to maintain revenue
neutrality. Specifically, beginning with the rate adjustment
calculated on or before March 1, 2012, the adjustment must
also take into account the extent to which actual revenues
derived resulted in a net revenue gain or loss for the FY
ending prior to the rate adjustment date.
FISCAL EFFECT: According to the Assembly Appropriations
Committee, minor and absorbable administrative costs to BOE;
insignificant impact to state revenue.
COMMENTS:
1)The author has provided the following statement in support of
this bill:
Current law, known as the "gas tax swap", requires
the BOE to annually adjust the state gasoline excise
tax rate in order to collect roughly the same amount
SB 321
Page 4
of revenue as the state would have collected if it
still charged a sales tax on gasoline. The BOE does
so by forecasting gasoline prices for the year.
Difficulty in forecasting gas prices inevitably
results in over- or under-collecting revenue and
requires future adjustments to compensate for any
discrepancy. That reconciliation leads to
volatility and big swings in the amount of tax
collected from year to year.
This volatility is bad for taxpayers who experience
big swings in prices at the pump, and for state and
local governments, who face uncertainty when
preparing multiyear budgets.
SB 321 reduces this volatility by changing the way
the BOE estimates gas prices. It requires BOE to
base next year's gas price estimate on an average of
the previous four years' actual prices (as opposed
to its current one year model).
2)Revenue and Taxation Committee Staff Comments
a) The fuel tax swap: In 2010, the Legislature enacted two
"fuel tax swap" measures that modified the state taxation
of both gasoline and diesel fuels. [AB 6 X8 (Budget
Committee), Chapter 11, Statutes of 2010 and SB 70 (Budget
and Fiscal Review Committee), Chapter 9, Statutes of 2010.]
The gasoline tax changes became operative on July 1, 2010,
while the diesel fuel tax changes became operative on July
1, 2011. According to the Senate Governance and Finance
Committee, the fuel tax swap was enacted partly to allow
the use of additional existing transportation revenue for
highway purposes, including General Obligation bond debt
service, where that debt service was related to
SB 321
Page 5
transportation projects.
i) The taxation of gasoline: The "fuel tax swap"
exempted gasoline from the state General Fund SUT rate.
To offset the revenue loss from this partial SUT
exemption, the Legislature increased the gasoline excise
tax rate from $0.18 per gallon to $0.353 per gallon.
ii) The taxation of diesel fuel: In contrast, the
diesel fuel excise tax rate was reduced under the "fuel
tax swap", from $0.18 per gallon to $0.13 per gallon.
The Legislature correspondingly increased the SUT rate on
diesel fuel to offset lost excise tax revenues, resulting
in the following rates:
(1) 1.87% effective July 1, 2011;
(2) 2.17% effective July 1, 2012;
(3) 1.94% effective July 1, 2013; and,
(4) 1.75% effective July 1, 2014, and thereafter.
b) Revenue neutrality: The "fuel tax swap" provisions
require the BOE to maintain revenue neutrality so that the
revenues derived from the increased gasoline excise tax and
the increased SUT on diesel equals the revenues that would
have been derived had the gasoline SUT partial exemption
and the diesel fuel excise tax reduction, respectively,
never occurred. Thus, R&TC Sections 7360 and 60050 require
the BOE annually to adjust the gasoline and diesel fuel
SB 321
Page 6
excise tax rates, respectively, either upward or downward,
to maintain revenue neutrality. This calculation requires
BOE staff to develop a forecast of both consumption and
price for both gasoline and diesel fuel. To this end, BOE
staff works closely with the Department of Finance (DOF)
and adopts the DOF's consumption forecasts.
The BOE notes that its annual rate calculations also take
into account the statutory "true up" requirements, which
specify a one-year look back period to determine the
difference between what was estimated for the previous FY
and what was actually collected.
What would this bill do? This bill would modify the method
by which the BOE annually adjusts the motor vehicle "fuel
tax swap" rate to take into account a five-year average of
fuel prices, thereby smoothing perceived revenue
volatility.
c) Smoothing things out: Advocates of this bill contend
that this bill would address the potentially "jarring"
fluctuations in excise tax revenues by basing price
projections on multi-year historical price data.
Proponents further contend that this increased revenue
stability would benefit both consumers, who pay the tax,
and state and local agencies that rely on the revenues to
build and maintain California's transportation
infrastructure.
There is evidence to suggest that this methodology would
smooth out revenue fluctuations to a certain degree. For
example, in the last four FYs, the actual excise tax rate
has fluctuated from a low of $0.357 in FY 2011-12 to a high
of $0.395 in FY 2013-14, representing a delta of $0.038 per
gallon. Had the five-year smoothing methodology been
SB 321
Page 7
employed over this same time period, the state would have
experienced a high of $0.363 in FY 2014-15 and a low of
$0.333 in FY 2012-13, representing a delta of $0.03 per
gallon.
The smoothing function of the five-year methodology comes
into even starker relief when applied to the current FY.
As a result of lower fuel prices, BOE staff recommended a
motor vehicle fuel excise tax rate of $0.285 per gallon.
The BOE members subsequently voted to increase staff's
recommended excise tax rate to $0.300 effective July 1,
2015. However, had the BOE used a five-year smoothing
methodology, it would have arrived at a per-gallon excise
tax rate of $0.326. Thus, this bill will, at least in the
short term, "artificially" prop up excise tax revenues
received by the state. Of course, assuming fuel prices
increase in the future, this methodology may also serve
artificially to constrain revenues in the not-so-distant
future.
Analysis Prepared by:
M. David Ruff / REV. & TAX. / (916) 319-2098
FN:
0001937
SB 321
Page 8