BILL ANALYSIS
AB 799
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Date of Hearing: April 25, 2005
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Johan Klehs, Chair
AB 799 (Leno) - As Introduced: February 18, 2005
Majority vote. Fiscal Committee.
SUBJECT : Local Vehicle License Fee: San Francisco
SUMMARY : Authorizes the Board of Supervisors of the City and
County of San Francisco (San Francisco) to impose a vehicle
license fee (VLF) on vehicles operated by residents of San
Francisco. Specifically, this bill :
1)Authorizes the Board of Supervisors (Board) of San Francisco,
by a 2/3 vote of the Board, to place before its voters a
measure to levy an additional VLF rate on vehicles owned by
residents for general revenue purposes.
2)Requires that the ordinance proposing the fee be submitted to
the electorate and approved by a majority of those voting.
3)Specifies that the total VLF rate, including any offset to
that rate, as provided, shall be 2% of the market value of the
vehicle.
4)Requires San Francisco to contract with the Department of
Motor Vehicles (DMV) to collect and administer the fee.
5)Requires the Franchise Tax Board (FTB) to notify the State
Controller of any state revenue losses resulting from
taxpayers deducting the local VLF fees authorized by this bill
for purposes of the Personal Income Tax Law and the
Corporation Tax Law.
6)Reduces San Francisco's VLF adjustment amount to cover these
reported losses as well as FTB's administrative costs.
EXISTING LAW imposes a VLF which is in lieu of a personal
property tax on all California motor vehicles at a rate of .65%
of the value of the vehicle.
FISCAL EFFECT : At the time this committee prepared this
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analysis, an estimate of the fiscal impact had not yet been
received from FTB. The General Fund is made whole for any
losses arising from additional income tax deductions claimed by
San Francisco residents because of the additional VLF rate;
however, the General Fund is reimbursed in arrears for this
loss.
According to the author, the fee would generate about
approximately $60 million annually for San Francisco.
Proposition 98 Fiscal Effect : No impact on K-14 school funding.
COMMENTS :
1)This bill is intended to provide San Francisco with
authorizing language to impose a local-option VLF. The fee
would be imposed at a rate equal to the difference between the
historical 2% state tax rate and the current rate actually
paid to the state by vehicle owners (0.65%) - in other words,
a tax rate of 1.35% on the depreciated value of San Francisco
residents' vehicles. The resulting total fee imposed on San
Francisco residents would be 2%. The ordinance providing for
this increase would have to be approved by a 2/3 vote of the
Board before it can be placed on the ballot for voter approval
by the electorate of San Francisco. Since the revenue from
the fee would be used for general revenue purposes, rather
than a specified purpose, the ordinance requires approval by a
majority of those voting. The fee would be administered by
DMV under contract with San Francisco, and DMV's costs would
be recovered from revenue generated by the fee.
2)Since the Internal Revenue Service considers the VLF to be in
the nature of a property tax, the VLF is deductible for both
federal and state income tax purposes. For those who itemize
deductions, up to 40% of the additional VLF would effectively
be borne by the state and federal governments in the form of
reduced income tax payments. The same would be true of a
local VLF such as that proposed by this bill. This bill
requires FTB to report these losses to the State Controller.
The losses would be deducted from VLF backfill remitted from
the state to San Francisco. The purpose of this provision is
to ensure that the General Fund is made whole for any losses
arising from additional income tax deductions claimed by San
Francisco residents because of the additional VLF rate. The
General Fund is reimbursed in arrears for this loss.
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3)According to the author, "The VLF is one of San Francisco's
largest sources of general-purpose tax revenues. These
revenues fund vital city programs, including public safety,
public health, social services, fire protection, public works
and cultural activities." Assemblymember Leno states, "If San
Francisco chooses to use this VLF option, an estimated $60
million would be brought in, above and beyond what San
Francisco currently receives." The author asserts that, "By
ensuring that the people of San Francisco have the ability to
control their own revenues, AB 799 gives San Francisco the
chance to protect city programs. At a time when San Francisco
is facing a severe budget shortfall, this proposal gives
voters a viable alternative to cutting services."
4)Legislative History :
a) AB 1187 (Leno), which failed passage in the Senate
Appropriations Committee in 2004, was substantially similar
to this bill. AB 1187 was not heard in the Assembly in
this form.
b) AB 925 (Burton), Chapter 966, Statutes of 1993,
authorized San Francisco to levy a surcharge on the 2% VLF,
for purposes of public transit financing, so long as
transit fares are not increased. The fee would have
required a 2/3 popular vote and the surcharge was estimated
to yield over $300 million for San Francisco at the time of
its enactment. However, it has never been enacted by San
Francisco, and according to the author, the authority has
been voided by a recent transit fare increase.
5)Proponents note that in the current fiscal climate, all
possible fiscal alternatives must be closely examined. They
also note that by ensuring that San Francisco has the ability
to control its own revenues, this bill gives San Francisco the
chance to protect city programs.
6)Opponents note that tax increases, whether at the state or
local level, further delay economic recovery. They also note
that, "Fairness dictates that the VLF rate should not be
increased to levels that exceed the rate at which other forms
of personal property are taxed."
7)This bill has been double-referred to both the Committees on
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Revenue and Taxation and Local Government. This bill passed
out of the Local Government Committee with a vote of 5-2.
REGISTERED SUPPORT / OPPOSITION :
Support
City and County of San Francisco
Rescue Muni
Transportation for a Livable City
San Francisco Bicycle Coalition
San Francisco Chamber of Commerce
San Francisco Labor Council, AFL-CIO
San Francisco Planning and Urban Research Association
Walk San Francisco
Opposition
Automobile Club of Southern California
California State Automobile Association
California Taxpayers' Association
Analysis Prepared by : Sabrina Landreth / REV. & TAX. / (916)
319-2098