BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 433| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 433 Author: Berryhill (R) Amended: 4/6/15 Vote: 21 SENATE GOVERNANCE & FIN. COMMITTEE: 6-0, 4/22/15 AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach NO VOTE RECORDED: Pavley SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 SUBJECT: Motor vehicle fuel taxes: diesel fuel taxes: rates: adjustments SOURCE: Author DIGEST: This bill requires the Department of Finance (DOF), instead of the Board of Equalization (BOE), to determine the annual the fuel tax swap rates. ANALYSIS: Existing law: 1)Requires BOE to annually adjust the gasoline and diesel fuel excise tax rates either upward or downward. For gasoline, the BOE determines: (a) whether the sales and use tax revenue loss related to the partial exemption was fully offset by the SB 433 Page 2 adjusted rate, and (b) the projected sales and use tax revenue loss for the next fiscal year, considering forecasted gasoline prices and consumption. For diesel fuel, BOE determines: (a) whether the revenue gain from the increased sales and use tax rate on diesel fuel sales and purchases was fully offset by the adjusted diesel fuel excise tax rate, and (b) the projected sales and use tax revenue gain for the next fiscal year, considering forecasted diesel fuel prices and consumption. By March 1 each year, BOE must determine the rate adjustments, and the adjusted rate applies on the following July 1. 2)Requires BOE to maintain revenue neutrality, so that the revenues derived from the increased gasoline excise tax and the increased diesel sales and use tax equals the revenues that would have been derived had the gasoline sales and use tax partial exemption and the diesel fuel excise tax reduction, respectively, not occurred. 3)Requires BOE Members approve these rates annually in a public meeting. This bill: 1)Requires DOF beginning on March 1, 2016, and every March 1 going forward, to annually calculate and adjust the gasoline and diesel tax rates. 2)Requires DOF to notify BOE of the calculated rates by March 10, 2016, and each March 10 thereafter. 3)Becomes effective January 1, 2016. Background In 2010, the Legislature enacted two "fuel tax swap" measures that changed the imposition and rates of state taxes on gasoline and diesel fuel, and require BOE to annually determine the SB 433 Page 3 appropriate excise tax rate adjustments to maintain revenue neutrality (ABX8-6, Assembly Committee on Budget, Chapter 11, Eighth Extraordinary Session) and (SB 70, Senate Committee on Budget and Fiscal Review, Chapter 9). The gasoline tax changes became operative on July 1, 2010, and the diesel fuel tax changes on July 1, 2011. The fuel tax swap was partly enacted, 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 transportation projects. The swap bills exempted sales and purchases of gasoline from the state sales and use tax rate. To offset the revenue loss related to this partial exemption, the law increased the gasoline excise tax rate from $0.18 per gallon to $0.353 per gallon. Conversely, the bills reduced the diesel fuel excise tax rate from $0.18 to $0.13 per gallon, but increased the sales and use tax rate on diesel fuel sales to offset the loss related from the reduction, resulting in the following rates: 1.87%, effective July 1, 2011, 2.17%, effective July 1, 2012, 1.94%, effective July 1, 2013, 1.75%, effective July 1, 2014, and thereafter. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No SUPPORT: (Verified5/5/15) Board of Equalization OPPOSITION: (Verified5/5/15) None received SB 433 Page 4 ARGUMENTS IN SUPPORT: According to the author, "The determination of the gasoline and diesel fuel excise tax rate is a ministerial function that the Department of Finance (DOF) already calculates in the Governor's yearly budget. The Board of Equalization (BOE) staff simply calculate a 'true-up' of the DOF calculation to set the tax rate. Because the fuel tax rate is voted on by elected officials from different parties in a public hearing, the issue is often politicized. Additionally, the BOE is an agency that collects taxes and performs tax audits. The agency was not designed to forecast prices on goods like gasoline. SB 433 will shift the responsibility of setting the gasoline and diesel fuel excise tax rate to the DOF beginning in the 2016-17 fiscal year. The Department already performs these calculations, so no additional responsibility would be given to the DOF. SB 433 will make this process less political and help reduce redundancy in state government." Prepared by:Myriam Bouaziz / GOV. & F. / (916) 651-4119 5/6/15 16:49:46 **** END ****