BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Michael J. Machado, Chair
AB 799 - Leno
Amended: May 27, 2005
Hearing: June 29, 2004 Fiscal: YES
SUBJECT: Vehicle license fee on vehicles in San Francisco
EXISTING LAW imposes a vehicle license fee (actually a
tax) which is in lieu of a personal property tax on all
motor vehicles not otherwise exempt. The fee is currently
levied at a rate of 0.65% on the value of the vehicle, with
the revenue dedicated to local governments. The taxable
value of a vehicle is established by the purchase price of
the vehicle, depreciated annually according to a statutory
schedule. Although the tax rate on vehicles is currently
0.65% of a vehicle's value, historically the rate was 2% of
value.
THIS BILL would allow the board of supervisors of the
City and County of San Francisco to impose a vehicle
license fee on vehicles operated by residents of San
Francisco. The fee would be imposed at a rate equal to the
difference between the historical 2% state tax rate and the
rate currently paid to the state by vehicle owners (0.65%)
- in other words, a tax rate of 1.35% on the depreciated
value of the San Francisco residents' vehicles. The
resulting total fee imposed on San Francisco residents
would be 2% (0.65% to the state, plus 1.35% to San
Francisco).
The tax would have to be approved by a 2/3 vote of the
board of supervisors and subsequently approved by a
majority vote of the voters. The revenue from the fee would
be used for general revenue purposes of the city.
The fee would be administered by DMV under contract
with the City and County; DMV's costs would be recovered
from revenue from the fee.
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As the VLF is effectively a property tax on vehicles,
it is deductible for both the state and federal income
taxes. The bill would require FTB to estimate the amount of
revenue loss due to deductibility for state purposes. The
estimated state revenue loss would be deducted by DMV from
the amount of fee collected and deposited in the General
Fund. FTB's costs of making the estimate (modification and
tabulation of tax forms, etc.) would be reimbursed to FTB
from fees collected by DMV for the city.
FISCAL EFFECT:
The fee would generate about $60 million annually for
the City and County of San Francisco, less costs of
collection and income tax revenue loss deduction (below).
DMV's one-time setup costs would amount to $250,000
(reprogramming and accounting procedures); DMV ongoing
administrative costs would be $100,000. These costs would
be deducted from the amount collected.
FTB estimates that the revenue loss to the state due
to deductibility of the VLF would be about $4 million after
the first year of implementation. This loss would be
transmitted to the General Fund, and FTB's estimating costs
would be reimbursed to FTB.
COMMENTS:
A. Purpose of the bill
The bill is intended to provide the City and County of
San Francisco with authorizing language to impose a
local-option vehicle license fee.
B. Local-option VLF previously existed for San Francisco
Legislation in 1993 (AB 925 Burton) authorized the
City and County of 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
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required a 2/3 popular vote. It has never been enacted by
the City and County.
At the time of its enactment the surcharge was
estimated that it could have yielded over $300 million for
the City and County. However the potential fee has
effectively been voided due to a recent increase in transit
fares.
C. VLF is deductible
Since the IRS considers the VLF to be in the nature of
a property tax, the VLF is deductible for both federal and
state income tax purposes. So 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.
The bill provides for reimbursing the General Fund for
this revenue loss from amounts collected.
D. FTB estimating concerns
FTB indicate that it is not clear whether they would
be required to actually verify the amount of deductions
taken for the fee by owners of vehicles registered in San
Francisco. Since FTB currently does not capture the
breakdown of itemized deductions on state tax returns it
would be an expensive process to actually make a
return-by-return verification of the revenue loss. However,
without such verification, they indicate that they would be
unable to make an accurate determination of the loss.
Support and Opposition
Support: City and County of San Francisco (sponsor)
San Francisco Chamber of Commerce
San Francisco Planning and Urban Research
Association
Transportation for a Livable City
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Rescue MUNI
Walk San Francisco
San Francisco Labor Council, AFL-CIO
San Francisco Bicycle Coalition
AFSCME
Association of Bay Area Governments
Oppose: Automobile Club of Southern California
California State Automobile Association
California Taxpayers' Association
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Consultant: Martin Helmke