BILL ANALYSIS �
SB 223
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Date of Hearing: July 6, 2011
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
SB 223 (Leno) - As Introduced: February 9, 2011
VOTE ONLY
Majority vote. Fiscal committee.
SENATE VOTE : 23-15
SUBJECT : Voter-approved local assessment: vehicles.
SUMMARY : Authorizes counties and the City and County of San
Francisco to impose a voter-approved local assessment (vehicle
assessment) on specified vehicles. Specifically, this bill :
1)Authorizes a county board of supervisors, by ordinance, to
impose a vehicle assessment for general revenue purposes, if
all of the following conditions are satisfied:
a) The ordinance complies with both of the following:
i) Specified requirements set forth in this bill; and
ii) The requirements of existing law pertaining to vote
thresholds that must be attained before a local
government or district can impose either special or
general taxes.
b) The ordinance is approved by a two-thirds vote of the
board of supervisors;
c) The ordinance proposing the "vehicle assessment is
approved by a majority vote of the voters voting on the
ordinance; and,
d) The board of supervisors transmits to the Department of
Motor Vehicles (DMV) and the Franchise Tax Board (FTB) a
certified copy of the ordinance imposing the vehicle
assessment immediately after the results of the election by
the voters are certified.
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2)Requires any ordinance imposing a vehicle assessment to
include the following specific provisions stating that:
a) The vehicle assessment is to be imposed on residents of
the county, or city and county, for the privilege of
operating a vehicle or trailer coach on public highways in
the county or city and county;
b) The amount of the vehicle assessment is to be set at the
difference between 2% of the market value of a vehicle or
trailer and the current vehicle license fee (VLF) and
cannot exceed 2% of a vehicle's market value;
c) Any adjustment to the rate required to be made because
of a change in the rate of the VLF, or any offset to that
rate, may not take effect until the first day of the fiscal
year (FY) following the one in which the change became
operative;
d) The assessment will begin to be imposed if the election
in which the ordinance receives voter approval occurs
between:
i) January 1 and December 31, on January 1 following
that election; and
ii) July 1 and December 31, on July 1 following that
election.
e) Provisions identical to those contained in the state VLF
Law, insofar as they relate to VLFs and are applicable,
except that the name of the county or the city and county
as the taxing agency shall be substituted for that of the
state;
f) All amendments, subsequent to the effective date of the
vehicle assessment ordinance, to the VLF Law and not
inconsistent with this bill shall automatically be
incorporated into the ordinance; and
g) The county, or city and county, is required to contract
with the DMV to administer and collect the vehicle
assessment and requires the contract to contain provisions
in substance as follows:
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i) A requirement that DMV perform all functions
incident to the administration and collection of the
vehicle assessment;
ii) A provision specifying the manner in which refunds
to a licensee pursuant to Revenue and Taxation Code
(R&TC) Part 5 (commencing with Section 10701), as
incorporated in the vehicle assessment ordinance, will be
made and administered; and
iii) A provision that requires the county to pay DMV for
the initial setup and programming costs identified by the
DMV.
3)Provides that a voter-approved ordinance imposing a vehicle
assessment, if consistent with conditions set forth in this
bill, that was approved by the board of supervisors and the
voters prior to this bill becoming effective is enforceable,
if both of the following apply:
a) The assessment is not imposed until at least 90 days
after the effective date of this bill; and
b) The board of supervisors ratifies its adoption of the
ordinance after the effective date of this bill and prior
to the first levy of the vehicle assessment imposed
pursuant to the approval of the ordinance.
4)Requires DMV to do all of the following in administering a
vehicle assessment:
a) Collect the voter-approved vehicle assessment pursuant
to a contract with the county or the city and county;
b) Deduct its costs in administering the vehicle assessment
from the collected assessments;
c) Transmit to the State Controller for deposit in the
General Fund (GF) the amount necessary to compensate the GF
for the loss incurred in the prior year as the result of
the deductions taken by the taxpayers for the vehicle
assessments under the Personal Income Tax (PIT) Law �R&TC
Part 10 (commencing with Section 17001] and the Corporation
Tax (CT) Law �R&TC Part 11 (commencing with Section
23001)];
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d) Transmit revenues derived from the assessments to the
county, or the city and county, as promptly as feasible;
and
e) Develop, in conjunction with the FTB, a reporting
process that would enable DMV to report to the county
boards of supervisors, in a timely manner, the data
necessary for the FTB to prepare the estimate of revenue
loss attributable to taxpayer deductions for the vehicle
assessments under the PIT and CT Laws.
5)States that this bill's provisions should not be construed as
supplanting any moneys that the state apportions to the
county, as specified.
6)Provides that if a county, or city and county, imposes a
vehicle assessment and experiences a reduction in revenue
because of an increase in the VLF rate, including any offset
to that rate, the state will not reimburse the county, or city
and county, for that loss in revenue.
7)Requires the FTB to report to DMV, on or before January 1 of
the second year after the assessment is imposed, an estimate
of the total amount of revenue lost to the state in the prior
year resulting from deductions taken under the PIT Law for
taxes paid as a result of the vehicle assessment having been
imposed.
EXISTING LAW :
1)Imposes a 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. Prior to May 19,
2009, the VLF tax rate was set at 0.65% of the value of a
vehicle. For vehicles registered between May 19, 2009 and
June 30, 2011, the VLF rate is temporarily increased to 1.15%
�ABx3 3 (Evans), Chapter 18, Statutes of 2009]. The revenues
from the portion of the rate increase from 0.65% to 1% are
deposited in the State GF, whereas revenues from the
additional increase of 0.15% are dedicated to specific local
public safety programs.
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2)Provides that VLFs collected by the state are allocated to
cities, counties, and cities and counties, less the costs of
collection and any refunds. �Article XI, Section 15,
California Constitution].
3)Authorizes cities, counties, and special districts to impose a
general tax for general governmental purposes with the
approval of a majority of the voters.
4)Authorizes cities, counties, and special districts to impose a
special tax for specified purposes with the approval of
two-thirds of the voters.
5)Allows taxpayers to deduct the VLF amount on their state
income tax returns as an itemized deduction. VLF is also
deductible for federal income tax purposes.
FISCAL EFFECT : Assuming that, beginning on July 1, 2013, all
counties, including the City and County of San Francisco, impose
a vehicle assessment, FTB staff estimates that this bill will
result in an annual GF revenue loss of $85 million in FY
2013-14, $50 million in FY 2014-15, and $5.7 million in FY
2015-16.
COMMENTS :
1)The Purpose of this Bill. As noted by the author, the VLF is
one of the state's 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. As the state struggles to fund critical services,
counties should have the option to add a vehicle assessment to
the VLF. According to the author, SB 223 would grant the
people of each county the right to choose whether to levy a
fee upon themselves to fund vital services and is carefully
drafted to eliminate any state or local costs, as all expenses
will be fully reimbursed from the new revenue generated by the
assessment.
2)Proponents . The proponents of this bill state that counties
face serious budget deficits, which threaten many vital
health, welfare, and public services. Under existing law,
counties have very few options to implement broad-based
revenue measures to fill the looming budget gaps. The
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proponents argue that SB 223 would "allow communities that are
willing to pay more money for local services to do so, without
forcing the same of residents in other areas." This bill
would create a tool for local governments to continue to
provide the level of public services residents demand.
3)Opponents . The opponents of this bill argue that, recently,
the VLF was substantially increased and that fairness dictates
that voters should not be presented with a ballot measure that
proposes a vehicle property tax that is unequal to the rate at
which other personal property items are taxed, which is 1%.
They further contend that a "local car tax would directly
impact the sales of vehicles" and would negatively affect the
auto industry. Finally, the opponents state that while the
purpose of this bill is to increase the general revenue for
the counties, it targets only "one particular industry to
achieve that result."
4)Local taxes . Constitutional requirements for voter approval
of local taxes were initiated with the passage of Proposition
13 in 1978, followed by Proposition 62, which was approved by
voters in 1986. Proposition 62 guaranteed that all local tax
increases be approved by voters. After Proposition 62, local
governments resorted to the use of fees and assessments, which
did not require voter approval, to fill the void. Ten years
later, in 1996, the passage of Proposition 218 added Articles
XIII C and XIII D, providing voters with control over taxes
regardless of whether they were called assessments, fees, or
charges. Proposition 218 also included a provision requiring
that special taxes receive two-thirds approval of the
electorate. In 2000, however, Proposition 39 provided a
narrow exception to the two-thirds vote requirement for
special taxes by authorizing the passage of local school
construction bond measures by approval of 55% of voters.
5)General Tax vs. Special Tax . While Proposition 13 did not
define the term "special tax", the courts, over time, have
opined that a tax is a "special tax" whenever expenditure of
its revenues is limited to specific purposes, i.e. the
proceeds of the tax are earmarked or dedicated in some manner
to a specific project or projects. In contrast, a tax is a
"general tax" only when its revenues are placed into the GF
and are available for expenditure for any and all governmental
purposes. � Bay Area Cellular Telephone Co. v. City of Union
City (2008) 162 Cal. App.4th 686; Howard Jarvis Taxpayers
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Assn. v. City of Roseville (2003) 106 Cal.App.4th 1178]. A
general tax must be approved by a majority vote of the
electorate, whereas a special tax may be imposed only with the
approval of at least two-thirds vote of the local voters. SB
223 authorizes a local county board of supervisors, by a
two-thirds vote, to place before the county voters, an
ordinance to levy a local vehicle assessment for general
revenue purposes, rather than a specified purpose. As such,
the ordinance only needs to be approved by a majority of the
county voters and does not require the supermajority vote
otherwise required for special taxes. The local assessment
would be administered by DMV under contract with the county,
and DMV's costs would be recovered from revenue generated by
the assessment.
6)State VLF . According to DMV, most vehicles are assessed a
VLF. The VLF was established by the Legislature in 1935 in
lieu of a property tax on vehicles. The VLF is a state tax
levied on the purchase price of a vehicle, and subsequently
annually assessed against the vehicle's value adjusted by a
statutory depreciation schedule. Proposition 1A, approved by
the voters in November 2004, requires that VLF revenue from
the existing 0.65% rate be allocated to support local health,
mental health, and social services costs under Realignment, or
otherwise allocated to local government. In February 2009,
the rate of the VLF was temporarily increased from the current
rate of 0.65% to a rate of 1.15%, except for commercial
vehicles with a gross weight of 10,000 pounds or more.
Revenues from the portion of the increase from 0.65% to 1% are
retained by the GF and revenues from the additional increase
of 0.15% are transferred to a newly created Local Safety and
Protection Account, which is continuously appropriated for
specific local public safety programs. The VLF rate increase
is effective for registrations beginning May 19, 2009
(corresponding to the timing of a weekly VLF billing cycle)
and expires on June 30, 2011.
7)Local VLF . In 1993, AB 925 (Burton), authorized the City and
County of San Francisco to levy a 2% VLF for purposes of
public transit financing so long as transit fares are not
increased. The fee would have required a two-thirds vote of
the electorate. It has never been enacted by the City and
County of San Francisco. 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
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has effectively been voided due to a recent increase in
transit fares.
8)Deductibility of the VLF for federal and state income tax
purposes . As a personal property tax, the VLF is deductible
for both federal and state income tax purposes. Thus, 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 purpose of this provision is to ensure that
the State GF is made whole for any losses arising from
additional income tax deductions claimed by the residents
because of the additional vehicle assessment. The GF would be
reimbursed in arrears for this loss. As an alternative to
reimbursing the GF for the loss that would result from the
deductions taken by taxpayers for the payment of local vehicle
assessments, the Committee may wish to consider amending this
bill to simply disallow a deduction under the PIT Law for the
local vehicle assessments authorized by this bill. By
disallowing a deduction for local vehicle assessments, the
administrative burden placed on both DMV and FTB will be
minimized.
9)The interaction of local vehicle assessments with other local
taxes . Under existing law, cities and counties may impose a
local tax under the Bradley-Burns Uniform Local Sales and Use
Tax Law, which requires that the rate of tax be fixed at 1% of
the sales price of tangible personal property (TPP) sold at
retail in the local jurisdiction or purchased outside that
jurisdiction for use within it. Local governments also are
authorized, by the Transactions and Use Tax Law and the
Additional Local Taxes Law, to levy "district" taxes, for
general or special purposes, subject to voter approval,
provided that the combined rate of tax in the county does not
exceed 2%. In general, district taxes levied under these
provisions are levied based on a percentage of the sales price
of the TPP. Beginning July 1, 2009, 132 local jurisdictions,
including cities, counties, and special purpose entities,
impose a district tax for general or specific purposes. Some
cities and counties have more than one district tax, while
others have none.
SB 223 will insert an additional layer into California's
complicated tax structure, thus, potentially making an already
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confusing system even more complicated for taxpayers to
understand. Additionally, SB 223 might have an impact on
voters' support of other local ballot measures that would
raise taxes, either at the county or city level. The voters
within that area may "max out" on local taxes and may be less
willing to approve other local ballot tax measures that are
dedicated to fund specific local needs or local projects.
Also, some counties may not be as willing to put a vehicle
assessment on the ballot knowing that it may impede its
ability to ask for tax increases on other important local
programs in the future.
Though this bill does not preclude the state from levying a
higher statewide VLF to help it address its budgetary
problems, its passage would make it more difficult to do so.
Under the proposed funding mechanism, any increase in state
fees would result in an automatic reduction in local VLF funds
available to support local programs.
10)Suggested FTB Amendments . The FTB staff suggests the
following technical amendment:
On page 5, line 35, after "part" insert "and annually
thereafter,"
11)Double-Referral . This bill was double-referred with the
Assembly Committee on Local Government and passed out of that
committee by a vote of 6-3 on June 22, 2011. For a more
comprehensive discussion of this bill, refer to that
committee's analysis.
12)Similar Legislation .
SB 653 (Steinberg), introduced in the current legislative
session, authorizes local governments to enact a local VLF,
income tax various excise taxes and a local oil severance tax.
SB 653 is pending on the Senate Floor.
SB 10 (Leno), introduced in the 2009-10 legislative session,
is identical to this bill. SB 10 died in the Assembly.
AB 1342 (Evans), introduced in the 2009-10 legislative
session, authorizes counties, under specified circumstances,
to adopt a local PIT, a local VLF, or both. AB 1342 was never
heard in this Committee and was returned to the Assembly Desk.
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AB 1590 (Leno), introduced in the 2007-08 Legislative Session,
was similar to this bill, but was limited to the City and
County of San Francisco. AB 1590 was held in the Senate
Revenue and Taxation Committee.
AB 799 (Leno), introduced in the 2005-06 Legislative Session,
is very similar to this bill, except it applied only to the
City and County of San Francisco. AB 799 was vetoed by the
Governor. In his veto message, the Governor stated:
"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."
AB 1208 (Yee), introduced in the 2005-06 Legislative
Session, would have imposed an additional VLF on the
residents of the City and County of San Francisco for the
purpose of funding maintenance and improvements of roads.
The fee would have been a flat fee per registered vehicle.
AB 1208 was vetoed by Governor Schwarzenegger.
REGISTERED SUPPORT / OPPOSITION :
Support
San Francisco Chamber of Commerce
California State Association of Counties
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The City and County of San Francisco
California Tax Reform Association
Opposition
California Taxpayers' Association
California New Car Dealers Association
California Chamber of Commerce
California State Automobile Association
AAA Northern California
Alliance of Automobile Manufacturers
Automobile Club of Southern California
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098