BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 1243|
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THIRD READING
Bill No: SB 1243
Author: Lowenthal (D)
Amended: 5/25/12
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 9-0, 5/9/12
AYES: Wolk, Dutton, DeSaulnier, Fuller, Hancock,
Hernandez, Kehoe, La Malfa, Liu
SENATE APPROPRIATIONS COMMITTEE : 7-0, 5/24/12
AYES: Kehoe, Walters, Alquist, Dutton, Lieu, Price,
Steinberg
SUBJECT : Sales and use taxes: exemptions: marine or
maritime fuel
SOURCE : Author
DIGEST : This bill extends the sunset, until January 1,
2024, on sales and use tax exemption for the purchase of
maritime fuels.
ANALYSIS : Under existing state law, sales of fuel and
petroleum products to water common carriers, for immediate
shipment outside this state, are exempt from tax for
activities after the first out-of-state destination. The
exemption requires a water common carrier to only pay tax
on the fuel needed to get from California to its first
out-of-state destination. The law defines "first
out-of-state destination" as the first point reached
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outside this state by a common carrier in the conduct of
its business as a common carrier at which cargo or
passengers are loaded or discharged, cargo containers are
added or removed, fuel is bunkered, or docking fees are
charged. The water common carrier is required to furnish
the seller of fuel or petroleum products an exemption
certificate in writing, specifying the quantity of fuel or
petroleum products exempt from sales and use taxation.
This exemption is scheduled to sunset on January 1, 2014.
This bill extends the current partial sales and use tax on
maritime fuels sold to water common carriers until January
1, 2024. The exemption only applies to fuels sold for use
after the first out-of-state destination in the conduct of
business as a common carrier at which cargo or passengers
are loaded or discharged, cargo containers are either added
or removed, fuel is transferred, or docking fees are
charged.
Background
Until July 15, 1991, sales of fuel and petroleum products
to water, air, and rail common carriers were exempt from
tax when used in the conduct of the carrier's common
carrier activities after the first out-of-state
destination. The exemption for bunker fuel purchased by
qualified waterborne vessels was dependent upon the amount
of bunker fuel on board the vessel prior to refueling. If
the quantity of bunker fuel on board the vessel on arrival
at the California port was sufficient to enable the vessel
to reach its first out-of-state destination, then the
bunker fuel loaded at the California port would have been
entirely exempt from tax. However, if the quantity of
bunker fuel needed on the voyage from the California port
to the first out-of-state destination and the amount used
while in port exceeded the quantity of fuel on board the
vessel on arrival at the California port, the amount of
that excess was subject to tax. The exemption was repealed
in 1991 and from July 15, 1991 through December 31, 1992,
sales of bunker fuel were subject to tax.
Beginning January 1, 1993 through 2003, bunker fuel was
exempted for certain uses through various bills (AB 2396,
1992 and AB 366, 1997). The LAO issued their report
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www.lao.ca.gov/2001/bunker_fuel/012501_bunker_fuel.pdf in
2001 on the effect of the bunker fuel exemption, and
concluded "On this tax policy basis, we recommend that the
Legislature remove the existing sunset for the current
partial (sales and use tax) exemption for bunker fuel
sales, and make the exemption permanent. This would result
in the (sales and use tax) being levied in the future only
on the portion of the fuel purchased in California which is
consumed between California and the first out-of-state
destination. This action would result in treating bunker
fuel sales similarly to other export sales and place
California ports on par with other U.S. out-of-state
ports."
SB 145 (Perata, 2002) was vetoed and bunker fuel was
subjected to the sales tax from January 1, 2003 through
March 31, 2004. SB 808 (Karnette, 2003) exempted the sales
and use taxes consistent with the previous law.
The LAO released an updated report in November 2007, and
found that the effects of the exemption had not changed
since their 2001 report. The LAO concluded "On this tax
policy basis, we recommend that the Legislature remove the
existing sunset for the current partial (sales and use tax)
exemption for bunker fuel sales, and make the exemption
permanent. This will result in the (sales and use tax) on
fuel purchased in California being levied in the future
only on the portion which is consumed between California
and a ship's arrival at its first out-of-state destination.
This action will permanently result in treating bunker
fuel sales similarly to other export sales and place
California ports on par with other out-of-state ports in
the nation."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee, the Board
of Equalization (BOE) estimates sales and use tax revenue
losses of $91.7 million to $137.5 million annually,
beginning in 2014, as follows:
$41.3 million to $61.9 million in General Fund losses.
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$2.6 million to $3.9 million in losses to the Fiscal
Recovery Fund (ERB repayment).
$11.1 million to $16.7 million in losses to the Local
Revenue Fund of 2011 (dedicated to local realignment
purposes).
$21 million to $31.4 million in local revenue losses.
$15.7 million to $23.6 million in district revenue
losses.
SUPPORT : (Verified 5/25/12)
Alaska Tanker Company, LLC
American President Lines
American Waterways Operators
California Association of Port Authorities
California Taxpayers Association
California Trade Coalition
City of Carson Mayor, Jim Dear
CMA CGM America, LLC
Cruise Lines International Association
General Steamship Agencies
General Steamship Corporation
Harbor Association of Industry & Commerce
Horizon Lines
ILWU - Northern CA District Council
ILWU - Southern CA District Council
Inlandboatman's Union of the Pacific International
International Longshore and Warehouse Union
Maersk, Inc.
Masters, Mates and Pilots Union
Matson Navigation Company, Inc.
Mitchell and Mitchell Insurance Agency
MOL (America) Inc.
OOCL Inc.
Pacific Merchant Shipping Association
Port of Long Beach
Sailor's Union of the Pacific
Seafarers International Union
The Jankovich Company
Western Ocean Services
Yang Ming Corporation
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15 members of the Inlandboatmen's Union -Southern CA Region
AGB:do 5/25/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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