BILL ANALYSIS �
SB 1492
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Date of Hearing: July 2, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
SB 1492 (Leno) - As Amended: April 9, 2012
Majority vote. Fiscal committee.
SENATE VOTE : 22-16
SUBJECT : Voter-approved local assessment: vehicles
SUMMARY : Authorizes the City and County of San Francisco (City
and County) to impose a voter-approved local assessment (vehicle
assessment) on specified vehicles. Specifically, this bill :
1)Authorizes the City and County board of supervisors, by
ordinance, to impose a vehicle assessment for general revenue
purposes, if all of the following conditions are satisfied:
a) The ordinance complies with both of the following:
i) Specified requirements set forth in this bill; and
ii) The requirements of existing law pertaining to vote
thresholds that must be attained before a local
government or district can impose either special or
general taxes.
b) The ordinance is approved by a two-thirds vote of the
board of supervisors;
c) The ordinance proposing the "vehicle assessment" is
approved by a majority vote of the voters voting on the
ordinance; and,
d) The board of supervisors transmits to the Department of
Motor Vehicles (DMV) and the Franchise Tax Board (FTB) a
certified copy of the ordinance imposing the vehicle
assessment immediately after the results of the election by
the voters are certified.
e) The proposed assessment does not create different
classes of vehicles (whether by type, size, passenger
capacity, value or cost, fuel consumption or any other
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characteristic) for differential taxation (whether by rate,
method, assessment ratio, or any other means), except for
specified vehicle license fee exemptions contained in
current law.
2)Requires an ordinance imposing a vehicle assessment to include
the following specific provisions stating that:
a) The vehicle assessment is to be imposed on residents of
the City and County, for the privilege of operating a
vehicle or trailer coach on public highways in the City and
County;
b) The annual amount of the vehicle assessment is to be set
as the difference between 2% of the market value of a
vehicle or trailer and the current vehicle license fee
(VLF), including any offset to that rate, and cannot exceed
2% of a vehicle's market value;
c) Any adjustment to the rate required to be made because
of a change in the rate of the VLF, or any offset to that
rate, may not take effect until the first day of the fiscal
year (FY) following the one in which the change became
operative;
d) The assessment will begin to be imposed if the election
in which the ordinance receives voter approval occurs
between:
i) January 1 and June 30, on January 1 following that
election; or
ii) July 1 and December 31, on July 1 following that
election.
e) Provisions identical to those contained in the state VLF
Law, insofar as they relate to VLFs and are applicable,
except that the name of the City and County as the taxing
agency shall be substituted for that of the state;
f) All amendments, subsequent to the effective date of the
vehicle assessment ordinance, to the VLF Law and not
inconsistent with this bill shall automatically be
incorporated into the ordinance; and
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g) The City and County, is required to contract with the
DMV for the administration and collection of the vehicle
assessment. The contract must contain provisions in
substance as follows:
i) A requirement that DMV perform all functions
incident to the administration and collection of the
vehicle assessment;
ii) A provision specifying the manner in which refunds
to a licensee pursuant to Revenue and Taxation Code
(R&TC) Part 5 (commencing with Section 10701), as
incorporated in the vehicle assessment ordinance, will be
made and administered; and
iii) A provision that requires the City and County to pay
DMV for the initial setup and programming costs
identified by the DMV.
3)Provides that a voter-approved ordinance imposing a vehicle
assessment, if consistent with conditions set forth in this
bill, that was approved by the board of supervisors and the
voters prior to this bill becoming effective is enforceable,
if both of the following apply:
a) The assessment is not imposed until at least 90 days
after the effective date of this bill; and
b) The board of supervisors ratifies its adoption of the
ordinance after the effective date of this bill and prior
to the first levy of the vehicle assessment imposed
pursuant to the approval of the ordinance.
4)Requires DMV to do all of the following in administering a
vehicle assessment:
a) Collect the voter-approved vehicle assessment pursuant
to a contract with the City and County;
b) Deduct its costs in administering the vehicle assessment
from the collected assessments;
c) Transmit to the State Controller for deposit in the
General Fund (GF) the amount necessary to compensate the GF
for the loss incurred in the prior year as the result of
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the deductions taken by the taxpayers for the vehicle
assessments under the Personal Income Tax (PIT) Law �R&TC
Part 10 (commencing with Section 17001)] and the
Corporation Tax (CT) Law �R&TC Part 11 (commencing with
Section 23001)];
d) Transmit to the City and County remaining revenues
derived from the assessments, as promptly as feasible; and
e) Develop, in conjunction with the FTB, a reporting
process that would enable DMV to report to the FTB, in a
timely manner, the data necessary for the FTB to prepare
the estimate of revenue loss attributable to taxpayer
deductions for the vehicle assessments under the PIT and CT
Laws.
5)States that this bill's provisions should not be construed as
supplanting any moneys that the state apportions to the City
and County, as specified.
6)Provides that, if the City and County imposes a vehicle
assessment and experiences a reduction in revenue because of
an increase in the VLF rate, including any offset to that
rate, the state will not reimburse the City and County for
that loss in revenue.
7)Requires the FTB to report to DMV, on or before January 1 of
the second year after the assessment is imposed, and annually
thereafter, an estimate of the total amount of revenue lost to
the state in the prior year resulting from deductions taken
under the PIT and CT Laws for taxes paid or incurred as a
result of the vehicle assessment having been imposed.
8)States that this act shall be known, and citied, as the Local
Assessment Act.
9)Defines several terms related to this bill's provisions.
10)States that the Legislature finds and declares that a special
law is necessary because numerous groups in the City and
County have requested that authorization be granted for such
an assessment in that City and County.
EXISTING LAW :
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1)Imposes a VLF, which is in lieu of a personal property tax on
California motor vehicles, at a rate based on the taxable
value of the vehicle. The taxable value of a vehicle is
established by the purchase price of the vehicle, depreciated
annually according to a statutory schedule. Prior to May 19,
2009, the VLF tax rate was set at 0.65% of the value of a
vehicle. For vehicles registered between May 19, 2009 and
June 30, 2010, the VLF rate was temporarily increased to 1.15%
�ABx3 3 (Evans), Chapter 18, Statutes of 2009]. The revenues
from the portion of the rate increase from 0.65% to 1% were
deposited in the State GF, whereas revenues from the
additional increase of 0.15% were dedicated to specific local
public safety programs.
2)Provides that VLFs collected by the state are allocated to
cities, counties, and cities and counties, less the costs of
collection and any refunds. �Article XI, Section 15,
California Constitution].
3)Authorizes cities, counties, and special districts to impose a
general tax for general governmental purposes with the
approval of a majority of the voters.
4)Authorizes cities, counties, and special districts to impose a
special tax for specified purposes with the approval of
two-thirds of the voters.
5)Allows taxpayers to deduct the VLF amount on their state
income tax returns as an itemized deduction. The VLF is also
deductible for federal income tax purposes.
FISCAL EFFECT : The FTB staff estimates that this bill will
result in an annual GF revenue loss of $2.7 million in the
fiscal year (FY) 2014-15, $1.6 million in FY 2015-16, and $0.2
million in FY 2016-17. These estimates are based on the
assumption that the City and County would begin imposing the
maximum local VLF on July 1, 2014 and that the proposed vehicle
assessment would be deducted beginning with the 2014 tax
returns.
COMMENTS :
1)Purpose of this Bill. According to the author, the VLF is one
of the largest sources of general-purpose tax revenues for
California's counties. These revenues fund vital programs,
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including public safety, public health, social services, fire
protection, public works, and cultural activities. As noted
by the author, SB 1492 would grant the people of the City and
County the right to choose whether to levy a fee upon
themselves to fund vital services, giving county voters a
viable alternative to cutting services. SB 1492 allows for
voter determination in these severely challenged fiscal times.
2)Proponents. The proponents of this bill state that SB 1492
would allow the voters of the City and County to levy a fee
upon themselves to fund local vital services. Furthermore,
this bill provides a viable alternative to cutting services at
a time when new funding is limited. It would create a tool
for the City and County to continue to provide the level of
public services residents demand.
3)Opponents. The opponents of this bill argue that with new
vehicle sales down at least 33% from those in the last decade,
gasoline prices exceeding $4 per gallon, and high unemployment
in our current poor economic climate, there continues to be no
reason to further increase the cost of vehicle ownership in
California. According to the opposition, California motorists
are overtaxed compared to the rest of the nation.
4)Local taxes . Constitutional requirements for voter approval
of local taxes were initiated with the passage of Proposition
13 in 1978, followed by Proposition 62, which was approved by
voters in 1986. Proposition 62 guaranteed that all local tax
increases be approved by voters. After Proposition 62, local
governments resorted to the use of fees and assessments, which
did not require voter approval, to fill the void. Ten years
later, in 1996, the passage of Proposition 218 added Articles
XIII C and XIII D, providing voters with control over taxes
regardless of whether they were called assessments, fees, or
charges. Proposition 218 also included a provision requiring
that special taxes receive two-thirds approval of the
electorate. In 2000, however, Proposition 39 provided a
narrow exception to the two-thirds vote requirement for
special taxes by authorizing the passage of local school
construction bond measures by approval of 55% of voters.
5)General Tax vs. Special Tax . While Proposition 13 did not
define the term "special tax", the courts, over time, have
opined that a tax is a "special tax" whenever expenditure of
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its revenues is limited to specific purposes, i.e. the
proceeds of the tax are earmarked or dedicated in some manner
to a specific project or projects. In contrast, a tax is a
"general tax" only when its revenues are placed into the GF
and are available for expenditure for any and all governmental
purposes. �Bay Area Cellular Telephone Co. v. City of Union
City (2008) 162 Cal.App.4th 686; Howard Jarvis Taxpayers Assn.
v. City of Roseville (2003) 106 Cal.App.4th 1178]. A general
tax must be approved by a majority vote of the electorate,
whereas a special tax may be imposed only with the approval of
at least two-thirds vote of the local voters. SB 1492
authorizes the City and County to place before the voters an
ordinance to levy a local vehicle assessment for general
revenue purposes, rather than a specified purpose. As such,
the ordinance only needs to be approved by a majority of the
county voters and does not require the supermajority vote
otherwise required for special taxes. The local assessment
would be administered by DMV under contract with the City and
County, and DMV's costs would be recovered from revenue
generated by the assessment.
6)State VLF . According to DMV, most vehicles are assessed a
VLF. The VLF was established by the Legislature in 1935 in
lieu of a property tax on vehicles. The VLF is a state tax
levied on the purchase price of a vehicle, and subsequently
annually assessed against the vehicle's value adjusted by a
statutory depreciation schedule. Proposition 1A, approved by
the voters in November 2004, requires that VLF revenue from
the existing 0.65% rate be allocated to support local health,
mental health, and social services costs under Realignment, or
otherwise allocated to local government. In February 2009,
the rate of the VLF was temporarily increased from the current
rate of 0.65% to a rate of 1.15%, except for commercial
vehicles with a gross weight of 10,000 pounds or more.
Revenues from the portion of the increase from 0.65% to 1%
were retained by the GF and revenues from the additional
increase of 0.15% were transferred to a newly created Local
Safety and Protection Account, which is continuously
appropriated for specific local public safety programs. The
VLF rate increase was effective for registrations beginning
May 19, 2009 (corresponding to the timing of a weekly VLF
billing cycle) and expired on June 30, 2011.
7)Local San Francisco VLF . In 1993, AB 925 (Burton), authorized
the City and County to levy a 2% VLF for purposes of public
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transit financing so long as transit fares are not increased.
The fee would have required a two-thirds vote of the
electorate. It has never been enacted by the City and County.
At the time of its enactment, it was estimated that the
surcharge could have yielded over $300 million for the City
and County. However, the potential fee has effectively been
voided due to a recent increase in transit fares.
8)Deductibility of the VLF for Federal and State Income Tax
Purposes . As a personal property tax, the VLF is deductible
for both federal and state income tax purposes. Thus, for
those who itemize deductions, up to 40% of the additional VLF
would effectively be borne by the state and federal
governments in the form of reduced income tax payments. The
same would be true of a local VLF, such as that proposed by
this bill. The purpose of this provision is to ensure that
the State GF is made whole for any losses arising from
additional income tax deductions claimed by the residents
because of the additional vehicle assessment. The GF would be
reimbursed in arrears for this loss. As an alternative to
reimbursing the GF for the loss that would result from the
deductions taken by taxpayers for the payment of local vehicle
assessments, the Committee may wish to consider amending this
bill to simply disallow a deduction under the PIT Law for the
local vehicle assessments authorized by this bill. By
disallowing a deduction for local vehicle assessments, the
administrative burden placed on both DMV and FTB will be
minimized.
9)A Long Legislative History. SB 1492 is the fifth time a local
VLF bill has been introduced in the California Legislature in
the last few years. AB 799 (Leno, 2005) and AB 1590 (Leno,
2007) were very similar to this bill in that they would have
applied only to the City and County. AB 799 was vetoed by
Governor Schwarzenegger stating that VLF fees take money away
from the hands of hard working Californians. AB 1590 was
returned by the Senate Revenue and Taxation Committee without
action. SB 223 (Leno, 2011) is almost identical to SB 1492
and was vetoed by Governor Brown citing that the Legislature
should focus on fashioning a broader revenue solution to our
state's fiscal crisis rather than a piecemeal approach. In
2003, Governor Schwarzenegger repealed a $4 billion increase
in the "car tax" imposed earlier in that year. Unfortunately,
Governor Schwarzenegger's repeal of the increase in the car
tax plunged the state into an even deeper budget crisis. Many
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California think tanks have stated that billions of dollars in
potential new revenue sources may be found if the rate of the
VLF is restored to the pre-2003 rate, which would generate $6
billion dollars annually. The Committee may wish to consider
whether to advance SB 1492, given that there is no substantial
difference between this bill and previous legislation that
Governor Brown vetoed. The Committee may also wish to discuss
the Governor's concerns about VLF piecemeal legislation.
10)Double-Referral . This bill was double-referred with the
Assembly Committee on Local Government and passed out of that
committee by a vote of 6-3 on June 13, 2012.
11)Similar Legislation .
SB 223 (Leno), introduced in the 2011-12 legislative session, is
identical this bill. SB 223 was vetoed by Governor Brown.
According to the Governor's message:
This bill permits the City and County of San Francisco to
enact a voter-approved local assessment on vehicles
registered to a San Francisco address.
Before we embark on a piecemeal approach for one city, we
should try to fashion a broader revenue solution to our
state's fiscal crisis.
SB 10 (Leno), introduced in the 2009-10 legislative session,
is identical to this bill. SB 10 died in the Assembly.
AB 1342 (Evans), introduced in the 2009-10 legislative
session, authorizes counties, under specified circumstances,
to adopt a local PIT, a local VLF, or both. AB 1342 was never
heard in this Committee and was returned to the Assembly Desk.
AB 1590 (Leno), introduced in the 2007-08 Legislative Session,
was similar to this bill, but was limited to the City and
County of San Francisco. AB 1590 was held in the Senate
Revenue and Taxation Committee.
AB 799 (Leno), introduced in the 2005-06 Legislative Session,
is very similar to this bill, except it applied only to the
City and County of San Francisco. AB 799 was vetoed by the
Governor. In his veto message, the Governor stated:
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Within hours of taking office in 2003, I signed an
Executive Order to reverse the car tax increase. That
action returned $4 billion to the people of California.
Putting that money back into the hands of hard working
Californians is one of the ways we have helped our
economy grow over the last three years.
This measure would, in effect, reinstate the car tax for
the people of San Francisco. In fact, if the vehicle
license fee increase proposed by this bill were enacted,
the people of San Francisco could pay more than twice the
amount to register their vehicles than anyone else in the
state.
As noted in my veto messages of prior years, I am not
opposed to modest increases in fees if such increases are
approved by the impacted voters and not addressed in a
piecemeal fashion. Although this bill requires voter
approval, it impacts only one county.
AB 1208 (Yee), introduced in the 2005-06 Legislative
Session, would have imposed an additional VLF on the
residents of the City and County of San Francisco for the
purpose of funding maintenance and improvements of roads.
The fee would have been a flat fee per registered vehicle.
AB 1208 was vetoed by Governor Schwarzenegger.
REGISTERED SUPPORT / OPPOSITION :
Support
City and County of San Francisco
San Francisco Chamber of Commerce
Opposition
California Taxpayer's Association
California New Dealers Car Association
Analysis Prepared by : Meghan Ginley / Oksana Jaffe / REV. &
TAX. / (916) 319-2098
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