BILL ANALYSIS �
SB 1485
Page 1
SENATE THIRD READING
SB 1485 (Kehoe)
As Amended August 20, 2012
Majority vote. Tax levy
SENATE VOTE :39-0
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 : 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 tax-paid 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.
2)Provides that, to be eligible for a refund, a person must show
that the applicable California fuel tax has been paid and must
submit or 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
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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.
FISCAL EFFECT : The Assembly 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 :
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 $.09 per gallon.
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However, those who "splash blend" their E-85, are
required to pay the motor vehicle fuel (MVF) tax on
the gasoline ($.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.
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."
Assembly Revenue and Taxation Committee staff comments:
1)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. �Revenue and Taxation Code (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
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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.
2)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 Board of Equalization (BOE) notes:
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.
3)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.
4)What would this bill do? : This bill would authorize a person
who uses tax-paid MVF (i.e., gasoline) as a blending component
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of a fuel taxed under the UFT Law (e.g., E-85) to receive a
refund of the excise tax paid on that gasoline
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
FN: 0005030