BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 2756 (Assembly Revenue and Taxation Committee) - Diesel Fuel
Tax Law: Reimbursements
Amended: August 4, 2014 Policy Vote: T&H 11-0
Urgency: No Mandate: No
Hearing Date: August 4, 2014
Consultant: Robert Ingenito
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 2756 would provide for a diesel tax refund to a
supplier for that portion of biodiesel fuel removed from the
terminal rack as a dyed biodiesel fuel.
Fiscal Impact: The Board of Equalization (BOE) estimates that
the potential overpayment of diesel fuel tax in 2012-13 was
$800,000 (special fund). Given projected growth of the biodiesel
fuel industry, future refund amounts are likely to increase. BOE
indicates that administrative costs are absorbable.
Background: Under current law, a per-gallon excise tax is
imposed on the removal of diesel fuel (1) at the refinery or
terminal rack, (2) upon entry into California, or (3) upon sale
to an unlicensed person. Current law defines a "terminal" as a
distribution facility supplied by pipeline or vessel, from which
the diesel fuel may be removed at the rack. The term also
includes a diesel fuel production facility (i.e., a refinery)
with storage facilities not supplied by pipeline or vessel.
These diesel fuel production facilities have the same licensing
and reporting requirements as those terminals supplied by
pipeline or vessel.
Generally, a "supplier" of diesel fuel owes the excise tax at
the time the fuel is removed from the terminal rack. However,
if the diesel fuel enters California outside of the bulk
transfer/terminal system (i.e., "below the rack" by train or
truck), the excise tax is due upon entry into California.
The term "supplier" includes, among others, a person owning fuel
in a terminal (i.e., a "position holder"), a refiner, an
importer, a blender, and a terminal operator. The BOE requires
AB 2756 (Assembly Revenue and Taxation Committee)
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suppliers to be licensed and to file monthly returns or
information reports detailing the amount of fuel entered,
received, removed, and stored.
Under California law, biodiesel is considered to be a diesel
fuel and is subject to the excise tax on diesel fuel. The fuel
industry generally describes biodiesel according to the
applicable percentage of biodiesel blended with petroleum
diesel. For example, "B5" would represent a blend comprised of
95% petroleum diesel and 5% biodiesel.
Most domestically produced biodiesel comes from the Midwest.
Because distribution of this biodiesel occurs outside of the
normal bulk transfer/terminal system, the excise tax applies
upon the fuel's entry into California. As such, the "enterer"
is responsible for the diesel fuel tax when the fuel enters the
state. Biodiesel that is produced in California, on the other
hand, is generally taxed upon removal from the fuel production
facility.
In either case, when another supplier makes a subsequent
purchase of this tax-paid biodiesel to create a blended diesel
fuel, the tax-paid biodiesel fuel is blended with "ex-tax"
diesel fuel. When this blended fuel is subsequently removed
from the terminal rack, it results in tax being assessed twice
on the biodiesel portion. In such cases, the state allows the
supplier to claim a credit on their return.
Some suppliers, however, have been unable to obtain a credit or
refund for taxes paid on biodiesel that enters the state, or is
produced in-state, and is delivered into their terminals as
tax-paid, but is subsequently removed at the terminal rack for a
nontaxable purpose. In other words, while current law allows
reimbursement for tax paid on diesel fuel that has been taxed
more than once, the current statutory regime does not account
for tax-paid diesel fuel that is taxed coming into the terminal
but removed for nontaxable purposes (i.e., dyed biodiesel
blends). In such cases, the supplier is unable to recover the
tax from the customer and is also unable to seek reimbursement
for the tax from the BOE. Since the tax-paid biodiesel portion
is blended with ex-tax dyed diesel fuel, it is not subject to
taxation when removed from the terminal rack. Because there is
no subsequent taxable event with which to claim the credit, the
current statute does not provide for a reimbursement of the
tax-paid portion of the biodiesel.
AB 2756 (Assembly Revenue and Taxation Committee)
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Proposed Law: This bill would provide for a diesel tax refund to
a supplier for that portion of biodiesel fuel removed from the
terminal rack as a dyed biodiesel fuel.
Staff Comments: Most domestically produced biodiesel comes from
the Midwest. Because distribution of this biodiesel occurs
outside of the normal bulk transfer/terminal system, the excise
tax applies upon the fuel's entry into California. As such, the
"enterer" is responsible for the diesel fuel tax when the fuel
enters the state. Biodiesel that is produced in California, on
the other hand, is generally taxed upon removal from the fuel
production facility.
In either case, when another supplier makes a subsequent
purchase of this tax-paid biodiesel to create a blended diesel
fuel, the tax-paid biodiesel fuel is blended with "ex-tax"
diesel fuel. When this blended fuel is subsequently removed
from the terminal rack, it results in tax being assessed twice
on the biodiesel portion. In such cases, the state allows the
supplier to claim a credit on their return.
Some suppliers, however, have been unable to obtain a credit or
refund for taxes paid on biodiesel that enters the state, or is
produced in-state, and is delivered into their terminals as
tax-paid, but is subsequently removed at the terminal rack for a
nontaxable purpose. In other words, while current law allows
reimbursement for tax paid on diesel fuel that has been taxed
more than once, the current statutory regime does not account
for tax-paid diesel fuel that is taxed coming into the terminal
but removed for nontaxable purposes (i.e., dyed biodiesel
blends). In such cases, the supplier is unable to recover the
tax from the customer and is also unable to seek reimbursement
for the tax from the BOE. Since the tax-paid biodiesel portion
is blended with ex-tax dyed diesel fuel, it is not subject to
taxation when removed from the terminal rack. Because there is
no subsequent taxable event with which to claim the credit, the
current statute does not provide for a reimbursement of the
tax-paid portion of the biodiesel.