BILL ANALYSIS �
AB 81
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Date of Hearing: May 27, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 81 (Beall) - As Amended: May 24, 2011
Policy Committee: Revenue and
Taxation Vote: 7-1
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill provides a partial sales and use tax (SUT) exemption
for fuel and petroleum products sold to or purchased by an air
common carrier (ACC) for consumption or shipment in the conduct
of its business as an ACC on domestic flights. Specifically,
this bill:
1)Exempts gross receipts exceeding the average spot price per
gallon over the previous five fiscal years (FYs). Provides
that the exemption shall apply on and after January 1, 2012,
and before January 1, 2020.
2)Specifies that, for application in the 2011-12 FY, the State
Board of Equalization (BOE) shall, on or before October 1,
2011, determine the average spot price over the previous five
FYs, per gallon, derived from the sale in this state of, or
the storage, use, or other consumption in this state of, fuel
and petroleum products sold to or purchased by an ACC for
consumption or shipment in the conduct of its business as an
ACC, on a domestic flight.
3)Specifies that, for application in the 2012-13 FY and each FY
thereafter, BOE shall, on or before March 1 preceding that FY,
determine the average spot price over the previous five FYs.
4)Provides that, notwithstanding existing law, the exemption
shall not apply to any tax levied by a county, city, or
district pursuant to either the Bradley-Burns Uniform Local
SUT Law or the Transactions and Use Tax Law, unless approved
by the local government that would otherwise receive the
revenues.
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5)Specifies that the exemption provisions shall be repealed on
January 1, 2017, unless the Employment Development Department
(EDD) makes a finding before that date that 2,000 or more jobs
have been created as a result of the exemption, in which case
the exemption shall remain in effect until January 1, 2020.
FISCAL EFFECT
The BOE estimates that this bill would result in revenue losses
of $54.3 million in FY 2011-12 and $108.8 million in FY 2012-13.
However, BOE also notes that, due to the recent increase in oil
prices, this bill is likely to result in a higher revenue
impact.
AB 81
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COMMENTS
1)Purpose . The author argues that rather than looking to
airlines and their passengers to fund programs that are
clearly government functions, California should take the lead
in rationalizing aviation charges. Airlines need to be
provided a stable and efficient fee and tax structure, as the
domestic passenger aviation system is a key to the state's
economic competitiveness.
2)Background . Jet fuel is an airline's second largest expense,
as it makes up a substantial portion of an airline's total
costs. A significant amount of jobs in the state depend on
the business provided by the services of the airline industry.
Domestic airline carriers must be provided a predictable
structure of fees and taxes in order for airlines to schedule
more passenger flights to and from California. The bill would
allow local governments to opt into the proposed exemption if
they vote to do so. If no local governments opted into the
proposed exemption, sales of fuel and petroleum products would
be exempt at the rate of 6.25% (the state rate of 5.25%, the
0.5% Local Revenue Fund rate and the 0.5% Local Public Safety
Fund rate).
Prior to July 15, 1991, fuel and petroleum products sold to
air, water and rail common carriers were exempt from sales tax
when used in the conduct of the carriers' activities after the
first out-of-state destination. This exemption was designed
to make California's ports and airports more competitive, and
it established consistency for interstate and foreign commerce
sales by exempting that portion of fuel transported outside of
California prior to use. This exemption was repealed as a
result of a budget crisis in 1991. The BOE notes that the
exemption was restored in 1992, but only with respect to water
common carriers, and only until January 1, 1998.
3)Prior legislation. A 1996 bill, AB 566 (Kaloogian) would have
restored the exemption for air common carriers. According to
a Department of Finance analysis of AB 566, "Governor Wilson
has proposed a different form of tax relief for the aircraft
industry. Under the Governor's proposal, a sales tax
exemption would be extended to property that becomes a
component part of an exempt aircraft as a result of
maintenance, repair, overhaul, or improvement of the aircraft
in compliance with FAA requirements." The Governor's proposal
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was actually enacted in the 1996 Legislative Session by SB 38
(Lockyer, et al., Stats. 1996, Ch. 954) which, among other
things, included the sales tax exemption for the component
parts.
Over the past several years, there have been at least five
other bills that would have provided a similar SUT exemption
for fuel and petroleum products used on domestic flights.
4)There is no registered opposition to this bill.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081