BILL ANALYSIS �
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: ab 2757
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: Rev&Tax
VERSION: 4/10/14
Analysis by: Carrie Cornwell FISCAL: yes
Hearing date: June 17, 2014
SUBJECT:
Diesel fuel tax: reimbursements
DESCRIPTION:
This bill provides for a refund of the excise tax paid on
biodiesel that is blended with tax-exempt diesel fuel.
ANALYSIS:
Biodiesel is an alternative vehicle fuel that contains no
petroleum and is produced from renewable resources, such as palm
oil or used vegetable oil. If biodiesel is combined with
petroleum diesel, the resulting fuel is referred to as Bxx where
xx equals the percentage of biodiesel in the fuel. Thus, B5
refers to fuel that is 5% renewable diesel and 95% petroleum
diesel.
Under California law, biodiesel is considered to be a diesel
fuel and is subject to the excise tax on diesel fuel.
Currently, the total excise tax paid on a gallon of diesel is 10
cents per gallon and on July 1 of this year will be 11 cents.
State law, known as the "gas tax swap," requires the Board of
Equalization to adjust annually the excise tax on diesel.
Typically, the state collects the diesel excise tax when a
tanker truck picks up the diesel from a refinery or distribution
terminal (known as "the rack") or when it enters the state via
truck or rail.
Existing law exempts diesel from the state excise tax if it is
used for purposes other than operating motor vehicles upon the
public streets and highways and a very few limited on-highway
uses. When diesel fuel is not taxed at the rack, then it is
dyed to make its illegal use on road easier for law enforcement
to discover. Untaxed diesel is often, and even in state law,
AB 2757 (REV &TAX) Page 2
referred to as dyed diesel.
Those who buy taxed diesel, but do not use it for a taxable
purpose, are eligible for a refund of the amount of tax paid.
To receive the refund, a taxpayer applies to the State Board of
Equalization, which processes and issues the refunds, typically
as part of the taxpayer's annual return with the board.
This bill makes a supplier of dyed biodiesel eligible for a
refund of the diesel excise tax that the supplier paid prior to
the biodiesel being blended with dyed diesel and removed from
the rack as tax-exempt.
COMMENTS:
Purpose . Most domestically produced biodiesel comes from the
Midwest. Typically, 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 - B5 for example - the tax-paid biodiesel fuel is blended
with 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.
If, however, it is blended with tax-exempt (i.e., dyed) diesel
fuel, then it leaves the rack without paying the excise tax. In
this case, suppliers have been unable to obtain a credit or
refund for taxes paid on that biodiesel. 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 Board of Equalization.
Assembly Votes:
Floor: 76-0
AB 2757 (REV &TAX) Page 3
Appr: 17-0
Rev & Tax: 9-0
POSITIONS: (Communicated to the committee before noon on
Wednesday, June 11,
2014.)
SUPPORT: None received.
OPPOSED: None received.