BILL ANALYSIS �
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: sb 1396
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: Dutton
VERSION: 4/11/12
Analysis by: Carrie Cornwell FISCAL: yes
Hearing date: May 8, 2012 URGENCY: YES
SUBJECT:
Gasoline and diesel fuel taxes
DESCRIPTION:
This bill lowers taxes on gasoline and diesel by exempting from
sales tax the amount charged for gasoline in excess of $3.88 per
gallon and for diesel in excess of $3.52 per gallon, capping
gasoline and diesel excise taxes, and allowing these excise
taxes to adjust down but not up under the cap.
ANALYSIS:
The state imposes a sales tax of 7.25 percent on taxable goods,
of which the state portion is 5 percent and the local portion is
2.25 percent. In addition, local jurisdictions impose their own
optional, voter-approved sales taxes, which vary from
jurisdiction to jurisdiction, but on average equal 0.86 percent.
State gasoline taxes
Existing law imposes an 18-cent per gallon excise tax on each
gallon of gasoline sold in the state of California. State law,
known as the "gas tax swap," imposes an additional excise tax on
gasoline that the Board of Equalization (BOE) adjusts annually
to equal the amount of sales tax that the state would charge on
gasoline sales if they were subject to the state portion of the
sales tax. Currently, the total excise tax paid on a gallon of
gasoline is 35.7 cents per gallon, and on July1 of this year it
will be 36 cents.
State diesel taxes
Similarly, for diesel fuel California historically imposed both
sales tax and an 18-cent per gallon excise tax on each gallon of
diesel sold in the state. The gas tax swap legislation reduced
this excise tax to 13 cents per gallon and imposed an additional
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1.75 percent sales tax beginning on July 1, 2010, and then
varies this additional sales tax on diesel as follows:
1.87 percent for the 2011-12 fiscal year;
2.17 percent for the 2012-13 fiscal year;
1.94 percent for the 2013-14 fiscal year.
The gas tax swap requires BOE to adjust the diesel excise tax
annually to ensure that the total amount of tax collected does
not vary from what it would have been if the 18-cent excise tax
and the sales tax rate had been left in place.
This bill :
Excludes, for purposes of the sales tax, amounts over $3.88
per gallon for retail sales of gasoline, including federal and
state excise taxes. (This price with local sales tax equates
to about $4 per gallon.)
Excludes, for purposes of the sales tax, amounts over $3.52
per gallon for retail sales of diesel, including federal
excise tax but excluding the state gasoline excise tax. (This
price with the sales tax and state excise tax equates to about
$4 per gallon.)
Caps the excise tax on gasoline so it can never exceed the
current 35.7 cents per gallon.
Directs, BOE within the gas tax swap provisions, to adjust the
amount of state excise tax charged per gallon on gasoline to
reflect price drops that would have lowered the sales tax, but
not price increases that would have raised the sales tax.
Caps the excise tax on diesel at 13 cents per gallon.
Directs BOE, within the gas tax swap provisions, to decrease
the amount of excise tax charged per gallon on diesel to
reflect increased revenues from the additional sales tax
resulting from price increases, but not to adjust the excise
tax up when lower prices result in decreased revenues.
Is an urgency measure.
COMMENTS:
1.Purpose . The author notes that California consumers are
paying an average of $4.38 per gallon of regular unleaded
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fuel, the highest in the continental United States. He
asserts that because of the way that taxes are calculated on
fuel, state coffers see a windfall of cash as gas prices rise
and Californians struggle to fill their gas tanks. For
example, in the second quarter of 2011, he states that the
state collected an additional $61 million in fuel tax revenue
despite the fact that fuel consumption fell by 127 million
gallons. By capping fuel taxes as this bill proposes, it will
save taxpayers hundreds of millions of dollars; money that can
be put towards food for their families, sending their children
to college, or saving for retirement. Additionally, he
introduced this bill to help create jobs in California,
because nearly every industry in the state uses fuel for
producing or transporting goods. With decreased taxes on
fuel, companies will have additional cash flow which could be
used for a variety of purposes.
2.Lower taxes, lower prices ? Decreasing the taxes a seller of a
good pays on that good does not necessarily result in a
decreased retail price to consumers. This is particularly
true for gasoline and diesel for which worldwide demand and
the world price of crude oil are the most significant
influences on the price. That is why, despite persistent
decreases in demand in California, the price of gasoline has
increased significantly in recent years. It is unlikely,
therefore, that this bill would result in price decreases, and
in any case, the bill makes no requirement on sellers that
they pass its tax savings through to consumers.
3.Revenue neutrality . Legislators crafted the gas tax swap of
2010 to remove transportation from the state's General Fund
and thus to ensure stable state-level revenue streams for
transportation. To achieve these ends, the gas tax swap
eliminated the state sales tax on gasoline and replaced it
with an increase in the gasoline excise tax designed to
generate an equivalent amount of revenue. To ensure
continuing revenue neutrality in the swap, each year the Board
of Equalization must adjust the gasoline excise tax such that
over time the new excise tax generates the same revenue as the
old sales tax on gasoline would have generated.
By eliminating the sales tax on gasoline, the gas tax swap
decreased the amount of revenue dedicated to transit. To
partially make up for this loss in transit funding, the gas
tax swap legislation also provided for a revenue-neutral swap
of (increased) sales tax on diesel and (reduced) diesel excise
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tax.
This bill undoes major portions of the 2010 gas tax swap, and
thus would decrease transportation revenues beginning on July
1, when it would stop the BOE from adjusting the gasoline
excise tax rate from 35.7 cents per gallon to 36 cents per
gallon. The bill would also limit BOE's ability to adjust the
excise tax rates over coming years to "true up" transportation
revenues to reflect how much revenue would have resulted if
the swap had never occurred. Over time, as the price of
gasoline increases, the 35.7-cent cap that this bill imposes
would ratchet transportation revenues down, limiting funds
available to state and local governments for street and road
maintenance and improvements.
4.2012-13 transportation funding loss . BOE staff estimates that
the revenue loss from the gasoline tax provisions of this bill
would be $439 million in fiscal year 2012-13. The vast
majority of this $439 million would be
constitutionally-protected dedicated transportation revenues.
Of this $439 million, $91 million would be lower local sales
tax revenues, some of which would be from voter-enacted
transportation sales tax measures, and $348 million would be
in state excise tax revenues. Article XIX of the California
Constitution dedicates excise tax revenues to the research,
planning, construction, improvement, maintenance, and
operation of public streets and highways and mass transit
guideways.
BOE estimates that the revenue loss from the diesel tax
provisions, which limit the sales tax on diesel, of this bill
would be $107 million in fiscal year 2012-13, $75 million of
which would come from state funding for transit.
5.Double-referral . The Rules Committee referred this bill to
both the Transportation and Housing Committee and to the
Governance and Finance Committee. Therefore, if this bill
passes this committee, it will be referred to the Committee on
Governance and Finance.
POSITIONS: (Communicated to the committee before noon on
Wednesday, May 2, 2012)
SUPPORT: Hon. George Runner, Member, State Board of
Equalization (sponsor)
Howard Jarvis Taxpayers Association
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OPPOSED: Associated General Contractors
California State Association of Counties
League of California Cities
Transportation California
United Contractors