BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 1907 HEARING: 6/25/14
AUTHOR: Ridley-Thomas FISCAL: Yes
VERSION: 4/3/14 TAX LEVY: No
CONSULTANT: Bouaziz
USE FUEL TAX: NATURAL GAS: GALLON EQUIVALENT
Changes the excise tax rate for compressed natural gas and
liquefied natural gas to remain revenue-neutral
Background and Existing Law
State law defines "fuel" to include any combustible gas or
liquid, by whatever name the gas or liquid may be known or
sold, used in an internal combustion engine for the
generation of power to propel a motor vehicle on the
highways, except fuel that is subject to the Motor Vehicle
Fuel Tax Law or the Diesel Fuel Tax Law. The definition
does not include any combustible gas or liquid specifically
manufactured and used for racing motor vehicles at a
racetrack.
State law imposes an excise tax of $0.18 per gallon for use
of fuels and an excise tax on compressed natural gas (CNG)
at a rate of $0.07 per 100 cubic feet. An excise tax of
$0.06 per gallon is imposed on liquefied natural gas (LNG).
A retailer who sells or delivers fuel must collect the tax
from the user and provide a receipt, unless an owner or
operator of a vehicle propelled by liquefied petroleum gas,
LNG, or CNG pays an annual flat rate fuel tax based on the
type or weight of the vehicle instead of the per gallon or
cubic foot rate.
Proposed Law
Assembly Bill 1907 changes the use fuel excise tax rate for
CNG from $0.07 per 100 cubic feet to $0.0887 per 5.66
pounds, and for LNG from $0.06 per gallon to $0.1017 per
6.06 pounds beginning on January 1, 2015.
AB 1907 -- 04/03/14 -- Page 2
Assembly Bill 1907 requires retailors to display signage
stating "gasoline gallon equivalent" or "diesel gallon
equivalent" when CNG or LNG is sold to the public.
Under Assembly Bill 1907, fuel retailors are not
responsible for any taxes due when an owner or operator has
provided written representation that the annual flat rate
fuel tax has been paid.
State Revenue Impact
None.
Comments
1. Purpose of the bill . According to the author,
"Traditional retail tax practices for Federal and State
governments are based on a "physical gallon" of measurement
versus a measurement of actual "energy content."
Unfortunately, these traditional volumetric taxation
methods disadvantage emerging domestic alternative fuels
like CNG and LNG due to their lower energy contents.
Specifically, to achieve the same British Thermal Units
(BTU's) of energy, it takes approximately1.7 LNG gallons to
match the same energy content of a single gallon of diesel.
In an effort to solve this, state tax commissions are
converting their systems from a volumetric tax to an energy
equivalent tax. This ensures a smoother transaction for
truck fleets and fuel station operators in purchasing and
selling natural gas fuel, respectively. Nine other states,
including Arkansas, Colorado, Florida, Georgia, Indiana,
Ohio, Oklahoma, Texas, and Virginia, have adopted similar
measures. AB 1907 would amend California's fuel excise tax
code to create an alignment with the growing number of
states that are modifying their tax codes to make way for
the increased use of natural gas for transportation."
2. Background . In 1993, the National Conference on
Weights and Measures came together to determine the way in
which CNG would be sold to the public at retail. The
working group focused on providing the industry a method of
selling natural gas that would be familiar to consumers,
providing officials with a verifiable method of determining
AB 1907 -- 04/03/14 -- Page 3
the accuracy of natural gas, and providing a uniform
standard of measurement. A recommendation was made to use
a gasoline gallon equivalent for the sale of CNG because it
would be convenient for retail customers to compare the
cost and fuel economy of a natural gas vehicle to a
comparable gasoline vehicle.
CNG can be measured by volume in standard cubic feet
(volume), by weight (pounds), or by its energy content
(BTU). The conversion rate from cubic feet to pounds for
CNG is not common knowledge, nor is the energy content of
CNG equivalent to a gallon of gasoline. This makes it
difficult for consumers to compare the cost of fuels sold
using different methods of measurements. The use of a
gasoline gallon equivalent and other gasoline equivalents,
therefore, provides consumers with a simple way of
comparing the price of energy in natural gas to a common
product that consumers are familiar with. In this case, a
gasoline gallon equivalent is based on the energy
equivalent of a single gallon of regular gasoline and a
diesel gallon equivalent is based on a single gallon of
diesel.
3. Equivalent gallon units are a national trend . Since
March, 2013, 11 states have passed legislation to measure
or label CNG and/or LNG in equivalent gallons of gasoline
or diesel.
Assembly Actions
Assembly Business and Professions 14-0
Assembly Revenue and Taxation9-0
Assembly Appropriations 17-0
Assembly Floor 78-0
Support and Opposition (06/19/14)
Support : Bay Area Air Quality Management District;
California Natural Gas Vehicle Coalition; California
Trucking Association; Honda; San Diego Gas & Electric;
Sempra Energy Utilities; Southern California Gas Company;
Trillium CNG; United Parcel Service; VNG, Co. (based in
Pennsylvania); Waste Management.
AB 1907 -- 04/03/14 -- Page 4
Opposition : None received.