BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 223 HEARING: 4/27/11
AUTHOR: Leno FISCAL: Yes
VERSION: 2/9/11 TAX LEVY: No
CONSULTANT: Miller
LOCAL VOTER APPROVED VEHICLE LICENSE FEE
Authorizes a county-wide local Vehicle License Fee (VLF)
based on voter approval.
Background and Existing Law
Existing state law imposes a vehicle license fee (VLF), 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 1.15 percent of the value of
a vehicle, but historically the rate has been 2% of value.
Until May 19, 2009, the rate was 0.65%, after the passage
of AB 3XXX (Evans, 2009) temporarily increased the VLF rate
to 1.15% and dedicated 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 (Evans, 2009) VLF rate increase became effective for
vehicle registrations on May 19, 2009 and expires on June
30, 2011 unless the Legislature extends the tax.
For the taxpayer, VLF is deductible on both state and
federal income taxes.
Proposed Law
Senate Bill 223 authorizes a county to impose a vehicle
license fee. The fee must first be authorized by the Board
of Supervisors by two-thirds and then also be placed before
the voters of that county for a vote.
SB 223 -- 2/9/11 -- Page 2
This bill specifies that the assessment rate shall be equal
to the difference between the historical 2% state VLF rate
and the current state VLF rate. For example, in January,
2011, when this bill takes effect, assuming the taxes have
not been extended, this would allow a county to impose a
local assessment rate of 1.35% on the depreciated value of
a county's residents' vehicles (2% minus the state VLF of
.65%). The resulting total VLF imposed on residents of
counties adopting the assessment would be two percent (.65%
to the state, plus 1.35% to the county). The bill provides
for the local assessment to adjust so that county residents
would never pay more than a maximum 2% rate. The bill
allows a county imposing the local assessment to impose a
lower rate for low-emission vehicles, as defined.
SB 223 any county imposing an assessment to contract with
the Department of Motor Vehicles (DMV) to collect and
administer the fee and to pay DMV for its initial setup and
programming costs. The DMV must collect the local
assessment, report to the Franchise Tax Board (FTB) and
transmit the revenues to the counties.
The bill specifies that any revenue generated by the local
VLF shall not supplant any moneys that the state
appropriates or apportions to the county.
State Revenue Impact
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 $60 million starting as early as 2011
and $60-90 million annually thereafter.
Comments
1. 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 further states that
key public services are under constant budget pressures
SB 223 -- 2/9/11 -- Page 3
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.
2. Taxes are too high. Opponents of the so-called "car
tax" criticize any program that increases the VLF, stating
that the tax hurts working class people and is a guise to
increase government spending overall. Furthermore,
opponents of the bill state that a property tax should not
exceed the 1% real property tax rate as an "in-lieu" tax.
3. Fourth time is a charm. Last year, the author
introduced SB 10 (Leno, 2010) which was similar to SB 223
and was held in the Assembly. Previously, the author
introduced two bills: AB 799 (Leno) of 2005 and AB 1590
(Leno) of 2007 were both very similar to this bill, except
they applied only to the 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.
SB 223 -- 2/9/11 -- Page 4
4. Yesterday seems so far away. AB 925 (Burton, 1993)
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 in the Legislature, 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.
5. Pass the buck to the feds. 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.
6. I can't drive 55. Opponents of the measure note that
a local VLF will directly impact the sales of vehicles and
that the auto industry has been particularly hard hit by
the recession and that this proposal will substantially
compound their difficulties.
7. The Constitution has the last word. 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,
SB 223 -- 2/9/11 -- Page 5
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.
8. Double referral. This bill was heard and approved by
the Senate Transportation and Housing Committee on March
29th with a vote of 6-3.
9. Seeing double. The local VLF in this bill is similar
to the one proposed in SB 653 (Steinberg) which authorizes
a local VLF, income tax, various excise taxes and a local
oil severance tax. SB 653 is set to be heard in this
committee on May 4th.
Support and Opposition (04/21/11)
Support : California State Association of Counties, City &
County of San Francisco; San Francisco Chamber of Commerce;
California Tax Reform Association.
Opposition : Alliance of Automobile Manufacturers;
California State Automobile Association; California New Car
Dealers Association; California Taxpayers Association;
Engineering and Utility Contractors Association.