BILL ANALYSIS �
SB 1243
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SENATE THIRD READING
SB 1243 (Alan Lowenthal)
As Amended May 25, 2012
Majority vote. Tax levy.
SENATE VOTE :38-0
REVENUE & TAXATION 8-0 APPROPRIATIONS 17-0
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|Ayes:|Perea, Harkey, Beall, |Ayes:|Gatto, Harkey, |
| |Cedillo, Fletcher, | |Blumenfield, Bradford, |
| |Fuentes, Gordon, Nestande | |Charles Calderon, Campos, |
| | | |Davis, Donnelly, Fuentes, |
| | | |Hall, Hill, Cedillo, |
| | | |Mitchell, Nielsen, Norby, |
| | | |Solorio, Wagner |
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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3)Deletes an outdated provision of current law requiring the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.
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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.
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 : The author notes that this bill extends a sunset in
current law, thereby continuing a partial sales tax exemption
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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
exemption for maritime fuel."
Assembly Revenue and Taxation Committee staff comments:
1)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.
2)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.
3)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
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million. As such, the LAO concluded that a partial exemption
for bunker fuel represents "an appropriate tax policy."
4)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.
5)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.
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
FN: 0004968
SB 1243
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