BILL ANALYSIS
AB 1981
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator S. Joseph Simitian, Chairman
2009-2010 Regular Session
BILL NO: AB 1981
AUTHOR: Hill
AMENDED: May 28, 2010
FISCAL: Yes HEARING DATE: June 28, 2010
URGENCY: No CONSULTANT: Caroll
Mortensen
SUBJECT : WASTE TIRE FEE
SUMMARY :
Existing law , pursuant to the California Tire Recycling Act
(Public Resources Code 42860 et seq.), administered by the
Department of Resources Recycling and Recovery (DRRR):
1)Requires retail sellers of new tires to collect a fee of
$1.75 per tire, of which $1.00 is deposited into the Tire
Management Fund (Fund) to promote recycling and other
alternatives to landfill disposal and stockpiling of waste
tires, and $0.75 is deposited in the Air Pollution Control
Fund (APCF) administered by the Air Resources Board (ARB)
for the mitigation of remediation of air pollution caused by
the decomposition of tires. Beginning January 1, 2015,
reduces the fee to $.75 to be deposited into the Fund.
2)Allows sellers of new tires to keep 1 % of the fee to cover
their administrative costs related to collection of the fee.
This bill :
1)Adds an additional finding to the codified findings and
declarations regarding the management of waste tires that
states: "To mitigate the environmental impacts caused by
tires mounted on new and used vehicles on California roads,
and to ease compliance for new motor vehicle dealers and
their customers, collection of a fee for vehicles sold by
new motor vehicle dealers should be assessed on a per
vehicle, rather than a per tire, basis".
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2)Exempts new tires sold with a new or used motor vehicle that
is sold by a new vehicle dealer from the definition of a new
tire for purposes of this bill and thereby exempts dealers
from collecting the tire fee for these tires.
3)Requires dealers to collect a "vehicle tire fee" of $10.50
for every new vehicle sold before January 1, 2015, and
reduces the fee to $5.50 on and after that date. Exempts
used vehicles sold by dealers from this fee.
4)Specifies that the vehicle tire fee be listed separately
from the tire fee on the conditional sale or lease
agreement.
5)Specifies that $5.98 of the vehicle tire fee be deposited
into the Fund and $4.52 of the vehicle tire fee be deposited
into the APCF until December 31, 2014.
6)Requires, on or before January 1, 2012, the State Board of
Equalization, in consultation with the ARB and DRRR, to
report to the Legislature concerning the fiscal impacts of
imposing the vehicle tire fee.
7)Makes conforming changes to the Automobile Sales Finance
Act.
COMMENTS:
1)Purpose of Bill . According to the author, in 1989, the
state created the Tire Recycling Program and the California
Tire Recycling Management Fund to deal with the millions of
used and waste tires generated annually by the state. The
current fee on each new individual tire sold at retail is
$1.75.
The sponsor states that as dealers automate their
procedures, the collection of the fee has been increasingly
problematic. Since only new tires are subject to the fee,
dealers must determine whether a new vehicle has a spare
tire and, on used vehicles, whether new tires were added to
the vehicle prior to sale. Dealers also assert that they
faced significant problems in keeping track of the number of
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new tires installed on used vehicles and charging customers
accordingly.
AB 1981 restructures the existing per tire fee for new
vehicle dealers only. This bill would exempt used cars sold
by new car dealers from the tire fee and instead imposes a
$10.50 vehicle tire fee only on new cars. The fee is
intended to be revenue neutral to the state.
2) Policy Concerns . This bill, while proposing a solution to
a small segment of fee payers, raises many concerns
regarding the solvency of the Tire Fund and creates an
equity issue for consumers.
3) Counting Tires . AB 1981 proposes a flat fee on the sale of
new cars assessed at a level to cover the average number of
tires on a new car, plus an amount to cover the assumption
of the average number of new tires that may be sold on a
used car by a new car dealer. The per-tire fee would no
longer be assessed on used cars sold by new car dealers.
The current structure of the assessment of the fee on a
per-tire basis has been in place since the waste tire
program and Fund were established in 2001. While it works
for the rest of the fee payers in the program, this
approach addresses the issue of the variability of new
tires on new cars. A new vehicle can have as few as two
new tires, for a motorcycle for example, or up to 18 for a
large truck or bus. For used cars sold by dealers, it
requires them to keep track of the number of new tires, if
any, they place on a used car they sell so they can
accurately assess the fee.
Solid data of the number of used cars sold by new car data
is lacking. Likewise for data that demonstrates how many
new tires those used cars may have been installed by a new
car dealer.
4) Tire and APCF Funds . As shown above, the variability of
the number of tires on new and used cars translates into
uncertainty when trying to apply a per car formula to deal
with new tires on both new and used cars to ensure the
total amount going into the funds is not changed. The bill
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declares the intent that the fee changes be revenue
neutral. Due to the uncertainty this is likely not to be
the case. As a result, the bill may result in increased
annual revenue to the funds, or decreased annual revenue to
those funds, possibly in the millions of dollars. For new
tires on new vehicles, the numbers and types of vehicles is
not constant. For new tires on used cars, the direction
and magnitude of revenue change in a given year would
depend upon the ratio of new vehicle sales to used vehicle
sales and the ratio of used vehicles sold by new vehicle
dealers, which would not be subject to any fee, to used
vehicles sold by used vehicle dealers, which would still be
subject to the per tire fee.
5) How Many New Tires on Used Cars ? The sponsor claims that
as they automate their procedures, the collection of the
tire fee is becoming increasingly problematic. Most fees
and taxes assessed on the sale of a car are counted on a
per car basis. As stated above, the tire fee is an
exception and is assessed on the actual number of new tires
on the new or used car. According to the sponsor, this is
problematic and it is difficult for them to keep track,
especially for the used cars they sell. However, when
researching used cars sold by new car dealers, much
maintenance and repair information, including installation
of tires, is available. The popular "CARFAX" service
provided by some dealers, allows a consumer to see the
history of a car including what work has been performed.
These reports include a great level of detail. For
example, you can see when a brake service or tune-up was
done, when wiper blades, belts or hoses were replaced.
Some even show when the car was washed. It also includes
information about the installation of new tires. Also, new
car dealers make available to their used car customers
copies of their "100 point" or similar inspections that
show that the car was examined and necessary repairs made.
It is assumed that this amount of information on a used car
shows its value and added to indicate to a customer that
the car is in tip-top condition. They also include
information about installation of new tires. With this
level of detail being supplied to customers about used
cars, it appears that developing a system to track the
number of new tires installed on used cars is possible.
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Sellers of new tires (including new vehicle dealers) are
allowed to retain 1% of the tire fees they collect to
cover their administrative costs.
6) Sales Contracts . The sponsor has indicated that a number
of lawsuits have been filed against dealers for
overcharging consumers for fees and BOE has initiated
audits and levied fines against new car dealers for
improper collection. The sales contract is a very long
form that is required to be completed with the sale of
every vehicle in California. The long form contains a list
of mandated fees that must be listed and assessed as
applicable, including the tire fee. If a fee is collected
incorrectly, it can nullify the contract. Also, BOE has
responsibility to audit the collection of the fee and does
have authority to levy fines and penalties if violations
are found. Thus, accuracy is important and it can cost the
dealer through voided contracts, lawsuits and fines and
penalties.
7) Who's paying for the 'solution' proposed by AB 1981 ? The
purchaser of a new vehicle will be paying for the
variability of the number of new tires on both new and used
vehicles. They will be paying a flat fee regardless of
whether their new vehicle has two or eighteen tires. Also,
the costs to implement and administer the per fee vehicle
must be borne by the funds (and fee payers). The BOE who
collects the fee on behalf of DRRR, estimates one-time
costs of an unknown amount, but at least several hundred
thousand dollars, to develop a new California vehicle tire
fee program, applicable to new car sellers only, with
on-going costs of tens of thousand per year. BOE's work
would include identifying affected vehicle dealers,
creating and revising forms and publications, and
developing or modifying computer programs. The bill also
contains a one-time reporting requirement for BOE, with
DRRR and ARB, to evaluate the new per vehicle fee to
determine if there is any change in revenue and requires
BOE to recommend any needed adjustments. The cost of this
report will be borne by the funds as well.
8) Policy Question ? Is AB 1981 viable given the uncertainty
it presents for the funds and the inequity posed to
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purchasers of new cars? Also, the report and the increased
costs for BOE to ramp up, implement, and separately
administer the new per vehicle fee, payment must be borne
by the funds making less money available to implement both
of the tire recycling program and air pollution programs.
This is during a time when the Tire Fund is running at a
deficit and has outstanding loans to the General Fund.
SOURCE : California New Car Dealers Association
SUPPORT : None
OPPOSITION : California Air Pollution Control Officers
Association
California Tire Dealers Association