BILL ANALYSIS Ó
SB 433
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Date of Hearing: July 13, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
SB
433 (Berryhill) - As Amended May 7, 2015
Majority vote. Fiscal committee.
SENATE VOTE: 38-0
SUBJECT: Motor vehicle fuel taxes: diesel fuel taxes: rates:
adjustments
SUMMARY: Transfers responsibility for calculating the annual
rate adjustments under the "fuel tax swap" from the State Board
of Equalization (BOE) to the Department of Finance (DOF).
Specifically, this bill:
1)Provides that, for the 2016-17 fiscal year (FY) to the 2020-21
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FY, inclusive, the DOF shall, on or before May 15 of the FY
immediately preceding the applicable FY, adjust the excise tax
rate on:
a) Motor vehicle fuel so as to generate an amount of
revenue equal to the amount of revenue loss attributable to
the partial sales and use tax (SUT) exemption; and,
b) Diesel fuel so as to result in a revenue loss equal to
the amount of revenue gain attributable to Revenue and
Taxation Code (R&TC) Sections 6051.8 and 6201.8.
2)Provides that these adjustments shall be based on estimates
the DOF makes, and that the adjusted rates shall be effective
during the state's next FY.
3)Provides that, no later than May 15, 2016, and each May 15
thereafter to May 15, 2020, the DOF shall notify the BOE of
the rate adjustments effective for the state's next FY.
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. (Id.)
2)Imposes, under the MVFT Law, an excise tax upon each gallon of
fuel. (R&TC Section 7360.)
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3)Provides, on and after July 1, 2010, a partial SUT exemption
for "motor vehicle fuel", as defined in R&TC Section 7326.
(R&TC Section 6357.7.)
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. (R&TC Section 7360(b)(2).)
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. (R&TC Section
7360(b)(3).)
6)Defines "diesel fuel" as any liquid that is commonly or
commercially known or sold as a fuel that is suitable for use
in a diesel-powered highway vehicle, as specified. (R&TC
Section 60022.)
7)Imposes, under the Diesel Fuel Tax (DFT) Law, an excise tax
upon each gallon of fuel. (R&TC Section 60050.)
8)Imposes an additional SUT on diesel fuel at the rate of 1.75%.
(R&TC Sections 6051.8 and 6201.8.) Collected revenues from
this additional tax are estimated by the BOE, with the
concurrence of the DOF, and transferred quarterly to the
Public Transportation Account in the State Transportation Fund
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for allocation, as specified.
9)Provides for the annual adjustment of the DFT excise tax rate.
Specifically, for the 2012-13 FY and each FY thereafter, the
BOE must adjust the rate so as to generate a revenue loss that
will equal the amount of revenue gain attributable to the
additional 1.75% SUT. 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. (R&TC Section
60050(b)(2).)
10)Provides for a "true up" process to maintain revenue
neutrality. Specifically, beginning with the rate adjustment
on or before March 1, 2013, 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. (R&TC Section 60050(b)(3).)
FISCAL EFFECT: Unknown
COMMENTS:
1)The author has provided the following statement in support of
this bill:
SB 433 seeks to shift the responsibility of setting the gas
and diesel excise tax rate from the BOE to the Department
of Finance beginning in the 2016-17 fiscal year.
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The Department already performs these calculations in the
Governor's yearly budget, so no additional responsibility
would be given, nor would the DOF require additional staff
to do this. This bill would streamline the process by
eliminating the duplication of efforts by the BOE and the
DOF.
The Board of Equalization is an agency that collects taxes
and performs tax audits. The agency was never intended to
forecast prices on goods like gasoline.
2)This bill is supported by the BOE, which notes the following:
[SB 433] requires the DOF, instead of the BOE, to determine
the annual excise tax rate adjustments for both gasoline
and diesel fuel for a five-fiscal year period, after which
the bill sunsets. This bill offers the following benefits:
Streamlines the fuel tax swap rate-setting. The BOE has
worked closely with the DOF to determine a forecast for
both consumption and fuel prices and adopts DOF's
consumption forecast that is prepared for budget purposes
to calculate the fuel tax swap rate. DOF rate-setting
streamlines the process.
Avoids duplication. This bill shifts responsibility to
the agency with more resources dedicated to economic
forecasting, avoiding duplication of efforts.
BOE continues to provide information and assistance. BOE
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staff would continue to provide notices and information
about the adjusted fuel tax rates to the taxpayers,
affected industry, and the public.
Legislative options. The limited five-year period could
allow the Legislature time to determine which agency can
best perform the fuel tax swap calculations.
3)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. [ABx8 6 (Committee on
Budget), Chapter 11, Statutes of 2010 and SB 70 (Committee
on Budget and Fiscal Review), 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 Committee on Governance
and Finance, 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
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
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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
excise tax rates, respectively, either upward or downward,
to maintain revenue neutrality. 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.
c) The resulting rates : Since the enactment of the fuel
tax swap, the BOE has adjusted the gasoline excise tax rate
to maintain the required revenue neutrality through
incremental increases and decreases as follows:
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i) July 1, 2011 : Increase of $0.004;
ii) July 1, 2012 : Increase of $0.003;
iii) July 1, 2013 : Increase of $0.035;
iv) July 1, 2014 : Decrease of $0.035; and,
v) July 1, 2015 : Decrease of $0.060.
The diesel fuel excise tax rate, in turn, has been adjusted
as follows:
i) July 1, 2012 : Decrease of $0.03;
ii) July 1, 2013 : Retain July 1, 2012 rate;
iii) July 1, 2014 : Increase of $0.01; and,
iv) July 1, 2015 : Increase of $0.02.
d) What would this bill do ? This bill would require the
DOF, instead of the BOE, to determine the annual excise tax
rate adjustments for motor vehicle fuel and diesel under
the "fuel tax swap" provisions for the next five FYs.
While the DOF would be responsible for setting the excise
tax rates, the BOE would maintain responsibility for
notifying impacted taxpayers, industries, and the general
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public.
e) The BOE currently makes numerous rate calculations each
year : As noted in its staff analysis of this bill, the BOE
sets rates for a wide range of tax and fee programs it
administers. BOE staff calculates these rates based on
prescribed methodologies and the BOE members approve these
rates annually in a public meeting. The following examples
are merely illustrative:
i) The tobacco products tax rate : Existing law imposes
a tax on the distribution of tobacco products, based on
the wholesale cost of these products, at a tax rate
determined annually by the BOE, which is equivalent to
the combined rate of tax imposed on cigarettes. (R&TC
Section 30123.) Specifically, the BOE's annual
calculation is based on the wholesale cost of tobacco
products as of March 1, and applies during the state's
next FY. (R&TC Section 30126.)
ii) The occupational lead poisoning prevention fee :
Existing law requires specified industrial employers to
pay an annual lead poisoning prevention fee to the BOE.
As part of its administrative duties, the BOE receives
information obtained by the California Blood Lead
Registry regarding evidence of potential occupational
lead poisoning by industry classification. Based on this
information, the BOE then determines how to categorize
employers based on the risk of elevated blood lead levels
(i.e., a level equal to or exceeding 25 micrograms of
lead per deciliter of blood). The BOE also adjusts the
lead poisoning prevention fees annually to reflect
increases or decreases in the cost of living during the
prior FY as measured by the Consumer Price Index issued
by the Department of Industrial Relations. (Health and
Safety Code Section 105190.)
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Given the wide array of taxes and fees the BOE administers
and the relative complexities of the rate adjustments noted
above, it seems doubtful that the annual excise tax
adjustments for fuels is straining the BOE's technical
capacities or personnel resources. The author's statement
reflected in the Senate Governance and Finance Committee's
analysis, however, suggests this bill is at least partly
motivated by a desire to "de-politicize" the process of
annually setting excise tax rates. Specifically, the
author's statement notes, "Because the fuel tax rate is
voted on by elected officials from different parties in a
public hearing, the issue is often politicized."
Committee staff is not in a position to assess the accuracy
of this assertion. On March 3, 2015, however, the
California Taxpayers Association (CalTax) issued a news
alert noting that the BOE had voted unanimously on February
24th to reduce the gasoline excise tax rate by $0.06,
thereby "eschewing a staff recommendation to reduce the gas
tax rate 7.5 cents per gallon . . . ." The CalTax alert
went on to note:
Originally, BOE Vice Chair George Runner and BOE Member
Diane Harkey voiced support for the staff's
recommendation. Both also denounced the process by which
the board determines the rate each year as irrational.
Mr. Runner said motorists don't know how much of the
price of gas represents taxes, but years ago the taxes
imposed were posted on the pump. Ms. Harkey said the
board should use the same methodology to reduce the tax
that is used when it raised the tax two years ago.
Noting the spike in gas prices in February, BOE Member
Fiona Ma said a 6-cent reduction is more realistic, and
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will mitigate a possible future rate increase that would
have to be made if the price estimate is wrong. The
compromise 6-cent reduction that she proposed was
agreeable to all board members.
f) Related legislation : SB 321 (Beall) would require the
BOE to adjust the gasoline excise tax rate to generate an
amount of revenue equal to revenue losses due to the SUT
exemption, based on estimates reflecting the combined
average of the actual fuel price over the previous four FYs
and the estimated fuel price for the current FY, as
specified. SB 321 (Beall) will be heard by this Committee
today.
REGISTERED SUPPORT / OPPOSITION:
Support
State Board of Equalization
Opposition
None on file
Analysis Prepared by:M. David Ruff / REV. & TAX. / (916)
319-2098
SB 433
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