BILL ANALYSIS �
SB 1485
Page 1
Date of Hearing: July 2, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
SB 1485 (Kehoe) - As Amended: April 19, 2012
Majority vote. Tax levy. Fiscal committee.
SENATE VOTE : 39-0
SUBJECT : Fuel taxes: blended fuels
SUMMARY : Authorizes a person who uses tax-paid motor vehicle
fuel (MVF) as a blending component of a fuel taxed under the Use
Fuel Tax (UFT) Law (e.g., E-85) to receive a refund of the
excise tax paid on that MVF. Specifically, this bill :
1)Allows a refund of MVF tax to any person who buys MVF to
produce a blended fuel that will be used to operate motor
vehicles on the state's highways, when that blended fuel is
taxed under the UFT Law, but only to the extent the person can
show that the applicable California fuel tax has been paid on
the blended fuel produced by the person.
2)Provides that, to be eligible for a refund, "a person must
show that the applicable California fuel �tax] has been paid
and �must have] submitted the refund application request on or
after January 1, 2011."
3)Takes immediate effect as a tax levy.
EXISTING LAW :
1)Imposes, pursuant to the MVF Tax Law and the Diesel Fuel Tax
(DFT) Law, state excise taxes at specified rates per gallon on
the removal, entry, sale, delivery, or specified use of MVF
and diesel fuel respectively.
2)Imposes, pursuant to the UFT Law, a state excise tax on the
use of other fuel at specified rates.
3)Allows certain persons who have paid a tax for MVF, as
specified, to be reimbursed and repaid the amount of the tax.
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FISCAL EFFECT : The Senate Appropriations Committee estimates
costs of roughly $288,000 in fiscal year (FY) 2012-13 to pay
past refunds, and ongoing costs of $199,000 annually, beginning
in FY 2012-13.
COMMENTS :
1)Background information provided by the author : According to
the author, California relies on petroleum-based fuels to meet
almost 96% of its on-road fuel demands. California's oil
fields, however, produce only 38% of the total oil needed to
fuel our transportation system. The remaining 62% of our
state's oil comes from foreign nations and from Alaskan
imports.
To diversify our state's transportation energy sources, both
state and national policymakers allow the use of E-85, a fuel
that is comprised of 85% ethanol (derived from corn) and 15%
gasoline. This fuel can be used in so-called "flex-fueled
vehicles" designed to run on both conventional gasoline and
E-85.
The author notes that E-85 makes its way to retail gas
stations in two ways. In some regions, it can be purchased at
the "rack" pre-blended. In other locations, it is "splash
blended" through a process whereby ethanol and gasoline are
purchased separately and then blended together to create E-85
fuel.
While E-85 can be procured either directly at the rack
pre-blended, or by mixing two fuels together, the two
procurement methods result in differential taxation by the
state. Specifically, the author notes:
Right now when someone brings their tanker trucks to
load-up on E-85 in order to sell it
at their fueling station, they are charged the use fuel tax
(UFT) when the fuel is finally sold at the gas station
(retail level) at $.09 per gallon.
However, those who "splash blend" their E-85, are required
to pay the motor vehicle fuel (MVF) tax on the gasoline
($.353 per gallon) up front, at the "rack", at the time of
purchase and then must pay the UFT when the E-85 is later
sold at the gas station.
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Essentially, these groups of E-85 "splash blenders" are
being taxed twice, while their competitors who �provide]
pre-blended E-85 are not.
The California Board of Equalization understood that
"splash-blenders" were being taxed twice on their E-85 fuel
and created a re-fund process so that the MVT could be
returned via the State Controller. But in March of 2011,
the Controller issued an opinion stating that the Revenue
and Taxation Code did not give him express authority to
provide a tax refund to E-85 "splash blenders".
The author contends that this bill "evens the playing field"
by clarifying that E-85 "splash-blenders" are entitled to a
MVF tax refund from the State Controller. In this manner,
everyone will pay the same tax (UFT), regardless of whether
the E-85 is pre-blended or "splash-blended."
2)The California Independent Oil Marketers Association (CIOMA)
is sponsoring this bill. By way of background, the CIOMA
notes:
Several fuel marketers in this state, who are blending
E-85, have encountered a problem regarding the refund of
excessive state excise tax paid on the gasoline component
of this alternative fuel. The agency that issues the
refund checks to marketers / fuel blenders, the State
Controller's Office, does not believe the refunds are due.
However, conversations with the Board of Equalization, the
state's taxing policy agency and tax collector, indicate
they believe the refund is due since the blended fuel is
taxed under the state's use fuel tax law. Under this
situation marketers should pay 9 cents / gallon, total tax,
as the state vendor use tax on the blended E-85.
However, some marketers must purchase gasoline at the rack
as an excise-taxed product and desire to obtain a refund of
the 37.5 cents per gallon excise taxes paid on the gasoline
component, while paying the 9 cents / gallon use fuel tax
on the blended product. The Controller has opined that
they cannot issue the excise tax refund.
Since this measure is correcting an apparent conflict in
state law, where one agency, the Board of Equalization,
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already believes this refund is due to marketers, we
believe this measure will not have a significant effect on
state revenues since marketers should already be receiving
this refund. It is important to note that installation of
E-85 fueling infrastructure is expensive, since, typically,
a separate tank and fueling location / dispenser are
required. The lower excise tax burden on this alternative
fuel helps marketers to make a business case for installing
the separate fueling capacity needed to market and dispense
E-85.
3)Committee Staff Comments:
a) The UFT Law : Under the UFT Law, the state imposes an
excise tax of $0.18 per gallon for the use of fuel, with
certain exceptions. �R&TC Section 8651(a)(5).] R&TC
Section 8604 defines "fuel" to include any combustible gas
or liquid used in an internal combustion engine to propel
motor vehicles on the highways, except fuel that is subject
to tax under the MVF Tax Law or the DFT Law.
R&TC Section 8651.8(a), however, provides that the excise tax
imposed on ethanol or methanol containing no more than 15%
gasoline or diesel fuels shall be one-half the rate set for
most fuels under the UFT Law (i.e., $0.09 per gallon).
E-85 fuel, an ethanol and gasoline blend, is the
predominant blended fuel under the UFT Law.
While the UFT is imposed on the use of the fuel, pursuant
to R&TC Section 8732, the fuel's vendor is required to
collect the tax from the user and give the user a receipt.
Thus, vendors are required to collect and remit to the BOE
the $0.09 per gallon UFT on the full volume of E-85 sold or
dispensed from a retail pump.
b) The MVF Tax Law : Under the MVF Tax Law, the state
imposes an excise tax of $0.357 per gallon ($0.18 excise
tax and $0.177 surtax) on the removal of gasoline at the
refinery or terminal rack, upon entry into the state, and
upon sale to an unlicensed person. R&TC Section 8101, in
turn, requires the refund of the excise tax paid on
gasoline to certain persons under specified circumstances.
The BOE notes:
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With respect to �the] California excise tax on
gasoline, the �BOE] is responsible for registration,
licensing, return processing, auditing functions, and
appeals, while the State Controller's office (SCO) is
responsible for the collection of delinquent gas taxes
and the refund of excise taxes on gasoline not used on
�the] highway.
c) So, what's the problem? : As noted above, E-85 is a
product of blending two components - ethanol fuel and
gasoline. Where the blending occurs, however, impacts the
fuel's taxation. If the E-85 is obtained pre-blended at
the "rack," then the product is considered a use fuel and
the vendor is responsible for reporting and paying the tax.
However, if the E-85 is blended below the rack (i.e., the
two component fuels are purchased separately and blended
elsewhere in the distribution chain), the gasoline tax has
already been paid and passed on by the supplier at the
"rack" and, when the gasoline is blended with ethanol, the
resulting E-85 fuel is then subject to the UFT on the full
volume.
In October 2011, the BOE issued a special notice for
producers of E-85 fuel, which explained that below-the-rack
blenders are not entitled to a refund of the MVF tax paid
on the gasoline component of the E-85.
d) What would this bill do? : This bill would authorize a
person who uses tax-paid MVF (i.e., gasoline) as a blending
component of a fuel taxed under the UFT Law (e.g., E-85) to
receive a refund of the excise tax paid on that gasoline.
This bill further provides that, to be eligible for a
refund, "a person must show that the applicable California
fuel has �sic] been paid and submitted the refund
application request on or after January 1, 2011." The
author may wish to amend this language for clarity and to
replace the reference to "California fuel" with "California
fuel tax."
REGISTERED SUPPORT / OPPOSITION :
Support
California Independent Oil Marketers Association (sponsor)
SB 1485
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Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098