BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
10 (Leno)
Hearing Date: 5/4/2009 Amended: 4/13/2009
Consultant: Mark McKenzie Policy Vote: T&H 6-4
Rev&Tax 5-3
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BILL SUMMARY: SB 10 would authorize a county to impose a
voter-approved local assessment on the value of motor vehicles
registered within its jurisdiction at a rate that is equal to
the difference between the statewide rate of the vehicle license
fee (VLF) and 2% of a vehicle's market value.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
Maximum local assessments
($1,483,250)($4,711,500)Local
(revenue gain)
DMV programming/admin $543 $112 Special*
(up-front costs paid by county, ongoing
costs
deducted from assessments collected)
Maximum tax revenue loss $180,000
$10,000General
from VLF taxpayer deductions
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* Motor Vehicle Account
Staff notes that the local assessment revenue gain and tax
revenue loss shown here are based upon approval of the
assessment in every county in the state. Actual costs and
revenues would depend upon the number of counties approving an
assessment and the number of vehicles registered in those
counties. For purposes of example, if only San Francisco (with
423,110 fee-paid vehicle registrations) approved an assessment
of 2% and the current VLF is 1.15%, annual local revenues would
be $43,147,220 and the estimated annual tax revenue loss in the
first year would be approximately $1.5 million. Tax revenue
losses are reimbursed to the General Fund in the following year
from revenues collected.
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
Existing law imposes an annual vehicle license fee (in lieu of a
personal property tax) on all motor vehicles not otherwise
exempt. The VLF is calculated by multiplying the depreciated
value of the vehicle by a rate of 0.65%, with the revenue
dedicated to local governments. Although the current rate is
0.65 %, the rate had historically been 2% of a vehicle's value
up until 2004, and effective May 19, 2009, the rate will
increase to 1.15% pursuant to AB3x 3 (Evans), Chapter 18 of
2009-10 Third Extraordinary Session. The 1.15% rate will revert
to 0.65% on June 30, 2011, unless voters approve Proposition 1A
on the May 19, 2009 ballot, in which case the increased rate
would expire on June 30, 2013.
Page 2
SB 10 (Leno)
SB 10 would authorize a county board of supervisors (including
the City and County of San Francisco), upon approval by a 2/3
vote of the board of supervisors and a majority of the
electorate, to impose an assessment on the value of motor
vehicles registered in the county. This local assessment rate
would be equal to the difference between 2% of a vehicle's value
and the rate levied by the state (except that a lower rate may
be imposed for low-emission vehicles), and revenues collected
would be for general purposes. A county would be required to
contract with the Department of Motor Vehicles (DMV) to collect
and administer the fee. The bill would require a county to pay
DMV for initial setup and programming costs, and DMV would
recover any ongoing administrative costs from assessment
revenues collected.
Existing law provides that the VLF, which is effectively a
property tax on vehicles, is deductible for both the state and
federal income tax purposes. SB 10 would require DMV to provide
quarterly reports to the Franchise Tax Board (FTB) indicating
the amount of assessments paid in each participating county.
FTB would estimate the increased amount of tax revenue loss due
to deductibility of this additional assessment for state
purposes. The estimated state revenue loss for the prior year
would be deducted by DMV from the amount of fee revenue
collected and deposited in the General Fund.
FTB estimates a tax revenue loss as a result of increased VLF
tax deductions of approximately $180 million in 2011-12, and
$190 million in 2012-13 which would be reimbursed to the General
Fund from revenues collected by DMV in the next fiscal year.
For purposes of this estimate, FTB assumes all counties would
begin imposing the assessment at the maximum 2% rate on January
1, 2011, resulting in deductions being claimed on the 2011 tax
return that are filed in 2012. FTB estimates also assume that
the current VLF rate of 1.15% would expire and reset to 0.65% on
June 30, 2011, a total statewide vehicle value in 2011 of $349
billion, 50% of the value of the assessment would result in a
deduction, and a 7% tax rate.
DMV would be required to administer the collection and
distribution of the fees on behalf of each county agency that
received voter approval to impose the new assessment. Initial
costs for programming the new fee into DMV's processing system
would be $543,165, with ongoing administrative costs of
$112,362. Adding counties that approve assessments later would
be relatively minor. Initial costs would be paid up front by
the agency imposing the assessment through a direct contract
with DMV. Ongoing administrative costs to DMV would be deducted
from fees collected prior to distribution to the local agency.
DMV notes a concern about technical problems on their archaic
processing systems caused by the cumulative pressures placed on
these systems from the proliferation of fee codes. This bill
may result in an increase in vehicle transactions that must be
manually processed to the extent that numerous counties impose
the new assessment and transaction errors occur more frequently.
DMV is currently in the process of updating their information
technology systems. This modernization project should be
completed by 2013, at which time transactions will be processed
more efficiently and with fewer errors.
Page 3
SB 10 (Leno)
SB 10 authorizes a county that imposes the assessment to charge
a reduced rate for low-emission vehicles. DMV does not have the
ability to determine which vehicles qualify as low-emission
because their records do not currently track this data. This
may result in implementation and programming challenges for DMV
to charge a reduced rate when calculating the VLF for
registration purposes.