BILL ANALYSIS �
SB 223
Page 1
Date of Hearing: August 17, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 223 (Leno) - As Amended: July 11, 2011
Policy Committee: Revenue and
Taxation Vote: 5-3
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill authorizes the City and County of San Francisco to
impose an ordinance establishing a voter-approved local
assessment on specified vehicles. Specifically, this bill:
1)Requires the ordinance proposing the vehicle assessment to
meet the specified requirements of the bill and be approved by
a two-thirds vote of the board of supervisors and a majority
vote of the voters.
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 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 state vehicle license fee (VLF) and
cannot exceed 2% of a vehicle's market value.
1)The city and county, is required to contract with the
Department of Motor Vehicles (DMV) to administer and collect
the vehicle assessment and the city and county must pay DMV
for the initial setup and programming costs identified by the
DMV.
2)Requires DMV to perform the functions necessary to establish
and collect the vehicle assessment and to transmit to the
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State Controller for deposit in the General Fund the amount
necessary to compensate 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 and
the corporation tax.
3)Provides that if the city and county impose a vehicle
assessment and experience a reduction in revenue because of an
increase in the VLF rate, including any offset to that rate,
the state will not reimburse the city and county, for that
loss in revenue.
4)Requires the Franchise Tax Board (FTB) to report to DMV an
estimate of the total amount of revenue lost to the state
resulting from deductions taken under for taxes paid as a
result of the vehicle assessment having been imposed.
FISCAL EFFECT
DMV will incur approximately $500,000 initially to set up the
fee collection, with ongoing costs of $100,000 annually. These
will be reimbursed from the fee proceeds. FTB will incur some
costs which are expected to be minor and absorbable.
Because the fees paid are deductible from income taxes, there
will be a state revenue loss of approximately $3 million, which
will be paid back from the fee collections in the subsequent
year, assuming the tax is set at its maximum rate of 1.35%. A
net city and county rate of 1.35% will produce approximately $65
million for the City and County of San Francisco. This estimate
is based on a forecast by the Department of Finances of an
estimated gross value of automobiles in California of $340
billion and recent DMV figures on the proportion of car
registrations in San Francisco.
COMMENTS
1)Purpose. According to the author's office, the VLF is one of
the state's largest sources of general-purpose tax revenues
and funds vital programs, including public safety, public
health, social services, fire protection, public works and
cultural activities. This bill would allow the City and
County of San Francisco the option to add a Voter Approved
Local Assessment (VALA) to the VLF should the Board of
Supervisors approve it with a 2/3 vote and the voters approve
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with a majority vote.
2)Background. 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, be otherwise allocated to local government.
For the taxpayer, VLF is deductible on both state and federal
income taxes.
The VLF tax rate is currently .65% of the value of a vehicle,
but historically the rate has been 2%. Until May 19, 2009,
the rate was 0.65%, AB 3XXX (Evans, 2009) temporarily
increased the VLF rate to 1.15% and dedicated revenue from the
portion of the increase from 0.65% to 1% to the state General
Fund and revenue from the additional increase of 0.15% to
specific local public safety programs. The AB 3XX VLF rate
increase expired June 30, 2011.
3)General Tax vs. Special Tax . A tax is a general tax only when
its revenues are placed into the General Fund and are
available for expenditure for any and all governmental
purposes. 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 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.
4)Relevant 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.
5)Previous legislation . A substantially similar bill, SB 10
(Leno, 2009), died on the Assembly Floor. Similar bills, AB
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799 (Leno, 2005) and AB 1590 (Leno, 2007) would have applied
only to the city and county of San Francisco. AB 799 was
vetoed by Governor Schwarzenegger and AB 1590 was held in
Senate Revenue and Taxation Committee.
6)Support . 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. 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.
7)Opposition . Opponents of this bill argue that it will double
the car tax for San Francisco and that California motorists
already are overburdened with vehicles fees and taxes,
including the highest sales tax and highest gasoline tax.
They note this bill will adversely impact vehicle sales,
already hit hard by the economic recession and will exacerbate
the industry's financial difficulties. They also state that
this measure must be approved by a two-thirds vote of the
Legislature to be constitutionally valid as it results in
taxpayers paying higher taxes.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081