BILL ANALYSIS �
SB 1243
Page 1
Date of Hearing: July 2, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
SB 1243 (Lowenthal) - As Amended: May 25, 2012
Majority vote. Tax levy. Fiscal committee.
SENATE VOTE : 38-0
SUBJECT : Sales and Use Tax Law: exemption: marine or maritime
fuel
SUMMARY : Extends the sunset date for the current sales tax
exemption for specified fuel and petroleum products (e.g.,
bunker fuel) sold to water common carriers. Specifically, this
bill :
1)Extends, from January 1, 2014, to January 1, 2024, the sunset
date for the current sales tax exemption for fuel and
petroleum products sold to a water common carrier for
immediate shipment outside California for consumption after
the carrier's first out-of-state destination, as specified.
2)Modifies the definition of "first out-of-state destination" to
replace the reference to "bunkered" fuel with "transferred"
fuel.
3)Deletes an outdated provision of current law requiring the
Legislative Analyst's Office (LAO) to submit a report on
December 31, 2005, evaluating the economic impact of the
partial sales tax exemption for bunker fuel.
4)Provides that, notwithstanding existing law, the state shall
not reimburse any local agency for any sales and use tax (SUT)
revenues lost as a result of this act.
5)Takes immediate effect as a tax levy.
EXISTING LAW :
1)Imposes a sales tax on retailers for the privilege of selling
tangible personal property (TPP), absent a specific exemption.
The tax is based upon the retailer's gross receipts from TPP
sales in this state.
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2)Provides a sales tax exemption for fuel and petroleum products
sold to a water "common carrier" for immediate shipment
outside this state for consumption in the conduct of its
business as a common carrier after the "first out-of-state
destination." To qualify for this exemption, the common
carrier must provide the seller an exemption certificate
showing the quantity of fuel claimed as exempt, which will be
consumed after reaching the "first out-of-state destination."
�Revenue and Taxation Code (R&TC) Section 6385(c)].
3)Defines a "common carrier" to include any vessel engaged, for
compensation, in transporting persons or property in
interstate or foreign commerce. �R&TC Section 6385(e)].
4)Defines "first out-of-state destination" to mean the first
point reached outside this state by 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 term is also defined to include the entry point
of the Panama Canal when the carrier is only transiting the
canal in the conduct of its business as a common carrier.
�R&TC Section 6385(d)].
5)Provides for the automatic repeal of the "bunker fuel" sales
tax exemption provisions described above on January 1, 2014.
�R&TC Section 6385(m)].
6)Provides that the state will reimburse counties and cities for
revenue losses caused by the enactment of SUT exemptions.
FISCAL EFFECT : The State Board of Equalization (BOE) estimates
state and local revenue losses of between $91.7 million and
$137.5 million annually beginning in 2014.
COMMENTS :
1)The author notes that this bill extends a sunset in current
law, thereby continuing a partial sales tax exemption for
maritime fuels. This partial exemption is currently set to
expire on January 1, 2014. The author notes that this partial
exemption has expired twice in the past, and both times the
state lost hundreds of jobs. Finally, the author states, "SB
1243 seeks to protect port jobs and provide stability to the
marketplace by extending the sunset on the partial sales tax
SB 1243
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exemption for maritime fuel."
2)Proponents state:
This bill would protect California jobs and keep California
ports competitive by extending the partial sales tax
exemption on the purchase of marine fuel to January 1,
2024. This exemption applies to fuels sold for use after
the first out-of-state destination in the conduct of
business �. . . .]
This bill will assist the Port of Los Angeles, the largest
container port in North America and one of California's
leading maritime fuel providers for cargo ships, tugs,
barges and other marine vessels.
It is estimated that only 12% of maritime fuels are
consumed to the first out-of-state destination. However if
the incentive were to expire, maritime fuel sales would
decline 40% to 60%. Therefore, SB 1243 will provide
exemptions for a small percentage of carriers while
continuing to maintain and grow a relationship with a
majority of carriers.
3)Committee Staff Comments:
a) Background : Bunker fuel refers to the fuel used to
propel ships. Like most tangible products sold in
California, bunker fuel is generally subject to the state's
SUT Law. However, the state currently provides a partial
SUT exemption for bunker fuel sales. Specifically, it does
not tax fuel that will be consumed by a ship after its
first out-of-state destination.
b) History of the bunker fuel exemption : As noted by the
LAO, California's tax treatment of bunker fuel has changed
back and forth over time. From July 15, 1991, through
December 31, 1992, and again from January 1, 2003 through
March 31, 2004, California fully taxed all bunker fuel
sales in the state. On April 1, 2004, however, California
reinstated the partial exemption that had been allowed
prior to July 1991 and from January 1, 1993 through
December 31, 2002. This partial exemption is currently set
to expire on January 1, 2014.
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c) The LAO's first study : In January 2001, the LAO
released a statutorily mandated study on bunker fuel
pursuant to AB 366 (Havice), Chapter 615, Statutes of 1997.
In this report, the LAO noted that the bunker fuel
industry experienced a decline in California in the 1990s.
A host of factors contributed to this decline.
Specifically, the LAO pointed to general economic
conditions, reductions in refining capacity, changes in
shipping technology, the development of alternative bunker
fuel facilities outside California, and the temporary
revocation of the SUT exemption for bunker fuel during this
period.
The LAO further noted that the revocation of the SUT
exemption from July 1991 through December 1992 likely
resulted in the loss of between 100-200 industry-related
jobs, while increasing state and local SUT revenues by
roughly $20 to $30 million. As such, the LAO concluded
that a partial exemption for bunker fuel represents "an
appropriate tax policy."
d) The LAO takes another look : In November 2007, the LAO
prepared a second report in response to SB 808 (Karnette),
Chapter 712, Statutes of 2003, which reinstated the partial
exemption and also required the LAO to submit a report
assessing the partial exemption's impacts. In its 2007
report, the LAO found that the revocation of the SUT
exemption for bunker fuel during 2003 and 2004 produced
impacts similar to those experienced during the early
1990s. The LAO also noted that, due to recent increases in
fuel prices, revoking the SUT exemption now would likely
have an even larger adverse impact than it did previously.
In its bottom-line findings, the LAO stated:
Based on our review of the performance of the bunker
fuel market both with and without the partial
exemption in place, we conclude that the partial SUT
exemption for bunker fuel increases California bunker
fuel sales and related economic activities. At the
same time, however, it reduces state and local
revenues by tens of millions of dollars annually.
Thus, the LAO recommended removing the existing sunset for
the partial SUT exemption entirely.
SB 1243
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e) What would this bill do? : As noted above, this bill
would extend, until January 1, 2024, the sunset date for
the current partial sales tax exemption for bunker fuel.
This bill would also revise the definition of "first
out-of-state destination." Currently, the term is defined
as the first point reached outside this state by 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. This bill would
replace the term "bunkered" with "transferred." According
to the author's office, the term "bunkered" is simply
outdated. Nevertheless, the BOE notes the following in its
staff analysis of this bill:
The BOE staff notes that, in general, the term
transferred is more expansive than the terms bunkered,
or taken on, or loaded onto. Fuel transferred can
imply, for instance, that fuel is purchased and not
actually delivered onto the vessel, which would, in
turn, broaden the definition of "first out-of-state
destination." According to the author's office, the
phrase "fuel is transferred" still has the same
meaning as fuel is bunkered, which means that fuel is
taken on and/or loaded onto the vessel. According to
the author's office, replacing the term "bunkered"
with "transferred" simply corrects an outdated
reference and is not intended to expand the exemption
for qualified purchases of fuel and petroleum products
by a water common carrier.
REGISTERED SUPPORT / OPPOSITION :
Support
California Taxpayers Association
City of Carson
City of Los Angeles
Foss Maritime Company
Inlandboatmen's Union of the Pacific
International Longshore and Warehouse Union Southern California
District Council
International Organization of Masters, Mates and Pilots
Petro-Diamond Incorporated
Polynesia Line, Ltd.
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Sailor's Union of the Pacific
The Jankovich Company
Yang Ming (America) Corp.
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098