BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 10 - Leno
Amended: April 13, 2009
Hearing: April 22, 2009 Fiscal: Yes
SUMMARY: This bill authorizes a county to place on the
ballot a measure to impose an additional assessment on
vehicles owned by residents of that county.
EXISTING LAW
Existing state law imposes a vehicle license fee (VLF),
which is in lieu of a personal property tax on California
motor vehicles, at a rate based on the taxable value of the
vehicle. The taxable value of a vehicle is established by
the purchase price of the vehicle, depreciated annually
according to a statutory schedule.
The VLF tax rate is currently 0.65 percent of the value of
a vehicle, but historically the rate has been two percent
of value, and effective May 19, 2009, the rate will be 1.15
percent, because of AB 3XXX (Evans), Chapter 18, Statutes
of 2009-10 Third Extraordinary Session.
AB 3XXX temporarily increases the VLF rate to 1.15% and
dedicates revenue from the portion of the increase from
0.65 percent to one percent to the state General Fund and
revenue from the additional increase of 0.15 percent to
specific local public safety programs. AB 3XXX's VLF rate
increase becomes effective for vehicle registrations on May
19, 2009 and expires on June 30, 2011. However, if the
voters approve Proposition 1A, the budget stabilization
constitutional amendment, on the May 19th ballot both
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components of the rate increase will be extended for an
additional two years and will expire on June 30, 2013.
For the taxpayer, VLF is deductible on both state and
federal income taxes.
THIS BILL
Authorizes the Board of Supervisors of any county, by a
two-thirds vote, to adopt an ordinance to place before the
voters in that county a measure to levy a local assessment
for general revenue purposes. The local assessment would be
placed on residents of the county for the privilege of
operating a vehicle or trailer coach subject to the state
VLF upon the public streets and highways of the county.
Specifies that the assessment rate shall be equal to the
difference between the historical two percent state VLF
rate and the current state VLF rate. In 2010, when this
bill takes effect, this would allow imposition of a local
assessment rate of 0.85 percent on the depreciated value of
a county's residents' vehicles (2% minus the state VLF of
1.15%). The resulting total VLF imposed on residents of
counties adopting the assessment would be two percent (1.15
percent to the state, plus 0.85 percent to the county). The
bill provides for the local assessment to adjust so that
county residents would always pay two percent, even after
the state adjusts its rate.
Requires that the ordinance proposing the assessment be
submitted to the electorate of the county and approved by a
majority of those voting.
Allows a county imposing the local assessment to impose a
lower rate for low-emission vehicles, as defined.
Requires any county imposing an assessment to contract with
the Department of Motor Vehicles (DMV) to collect and
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administer the fee and to pay DMV for its initial setup and
programming costs.
Requires DMV to do all of the following:
o Collect the local assessment pursuant to
a contract with the county;
o Deduct its costs from the assessments
collected;
o Report to the Franchise Tax Board (FTB)
the aggregate amount paid by each person paying
the local assessment authorized under this bill
for the prior quarter. The FTB in turn shall
report to the DMV state revenue losses resulting
from taxpayers deducting the local VLF
assessments authorized by this bill from their
personal income tax and their corporation taxes.
DMV shall remit that amount to the State
Controller for deposit in the state General Fund,
ensuring that the implementation of this bill
results in no loss of state revenue; and
o Transmit the collected revenues minus
these deductions to the counties imposing the
assessments as promptly as feasible.
Provides that the revenue generated by a local assessment
imposed in a county shall not supplant any moneys that the
state apportions to the county.
FISCAL EFFECT:
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For counties that approve the tax, there could be
substantial potential net revenue; for example, if the City
and County of San Francisco were to impose the tax it would
generate as much as $30 million starting as early as
2010-11 and $60 million annually thereafter.
There would be moderate one-time costs, in the range of at
least $200,000 to the DMV to reprogram software and
implement accounting procedures to collect and disburse the
additional VLF; there would be ongoing costs in the range
of $150,000 annually. These costs are reimbursed by the
revenues generated by the imposition of the tax.
COMMENTS:
A. Purpose of the Bill:
The author notes that the VLF is one of the largest sources
of general-purpose tax revenues for California's counties.
These revenues fund vital programs, including public
safety, public health, social services, fire protection,
public works, and cultural activities. Much of this
revenue was lost when the Governor signed an executive
order in 2003 reducing the VLF to the 0.65 percent rate.
The author states that key public services are under
constant budget pressures from both increasing costs such
as labor, fuel, and medical expenses, as well as from
expanding need for public services resulting from
homelessness, HIV/AIDS, and reduced state and federal
funding due to current economic conditions. The author
introduced this bill to grant the people of each county the
right of voter determination to levy a fee upon themselves
to fund vital services and thus give county voters a viable
alternative to cutting services.
B. Previous Legislation
AB 799 (Leno) of 2005 and AB 1590 (Leno) of 2007 were both
very similar to this bill, except they applied only to the
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City and County of San Francisco. AB 1590 was never taken
up in a Senate policy committee and the Governor vetoed AB
799. His veto message read in part:
Within hours of taking office in 2003, I signed an
Executive Order to reverse the car tax increase. That
action returned $4 billion to the people of
California. Putting that money back into the hands of
hard working Californians is one of the ways we have
helped our economy grow over the last three years.
This measure would, in effect, reinstate the car tax
for the people of San Francisco. In fact, if the
vehicle license fee increase proposed by this bill
were enacted, the people of San Francisco could pay
more than twice the amount to register their vehicles
than anyone else in the state.
As noted in my veto messages of prior years, I am not
opposed to modest increases in fees if such increases
are approved by the impacted voters and not addressed
in a piecemeal fashion. Although this bill requires
voter approval, it impacts only one county.
C. There used to be a local option
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 required a 2/3
vote of the electorate. It has never been enacted by the
City and County. At the time of its enactment it was
estimated that the surcharge 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.
D. VLF is deductible; costs are included
Since the IRS considers the VLF to be in the nature of a
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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.
E. Vote requirements
The California Constitution prohibits any local government
from imposing, extending, or increasing any "general tax"
unless and until that tax is submitted to the electorate
and approved by a majority vote. A special tax, in turn,
may only be imposed if that tax is approved by a two-thirds
vote of the local electorate. The California Constitution
defines a general tax as any tax imposed for general
governmental purposes, while the term "special tax" is
defined as a tax imposed for specific purposes. This bill
authorizes a county Board of Supervisors, by a two-thirds
vote, to place before the voters of the county, an
ordinance to levy a local assessment for general revenue
purposes. As such, the ordinance only needs to be approved
by a majority of voters and does not require the
supermajority vote required for special taxes.
Support and Opposition
Support: California Communities United Institute
San Francisco Chamber of Commerce
Oppose:None Received
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Consultant: Gayle Miller