BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 983 HEARING: 4/30/2014
AUTHOR: Hernandez FISCAL: Yes
VERSION: 2/11/14 TAX LEVY: No
CONSULTANT: Bouaziz
CARD LOCK FUEL: PLACE OF SALE
Designates the point of sale for fuel dispensed from card
lock systems as the point of delivery of the fuel.
Background and Existing Law
State Law authorizes counties, under the Bradley-Burns law,
to impose a local sales and use tax of up to 1 percent on
tangible personal property sold at retail in the county, or
purchased outside the county for use in the county. All
cities and counties within California have adopted
ordinances under the terms of the Bradley-Burns Law and
levy the 1 percent local tax. Cities can impose a sales
and use tax rate of up to 1 percent, credited against the
county rate so that the combined rate does not exceed 1
percent. The State Board of Equalization (BOE) administers
these taxes. Of the 1 percent tax, 0.75 percent is used to
support general operations and the remaining 0.25 percent
is designated by statute for county transportation
purposes.
Bradley-Burns law specifies the "place of sale" for
purposes of the local sales tax. In general, all retail
sales in California are consummated at the place of
business of the retailer. If a retailer has only one place
of business in California, the local sales tax derived from
sales consummated at that place of business is transmitted
to the city, county, or city and county in which the
retailer's place of business is located. If a retailer has
more than one place of business in the State, BOE
regulation specifies that the sale occurs at the place of
business where the principal negotiations are carried on.
Out of state retailers that negotiate sales outside of
California, allocate the local tax in one of two ways. If
the out of state retailer is engaged in business in this
SB 983 -- 02/11/14 -- Page 2
state, the local tax is allocated to the location of the
retailer's in-state location. If the out of state retailer
is not engaged in business in this state, the local tax is
allocated to the location of the headquarters of the
California based business the retailer has contracted with.
A card lock network fuel system is comprised of
self-service fuel stations and at least one sales office.
The card lock network contracts with commercial,
industrial, and governmental fleets to provide fuel at both
stations owned by the card lock system and affiliate
stations not owned by card lock network. Customers are
issued cards which allow them to receive fuel at any of the
fuel stations owned by the card lock network or affiliated
with the card lock system. The contracts are negotiated
between the customer and the card lock network prior to the
delivery of the fuel. At card lock fueling stations, fuel
prices are generally not posted at the pump, and if prices
are posted, they do not apply to the sale of fuel to card
lock customers.
Proposed Law
Senate Bill 983 specifies that, for purposes of allocating
the local tax on sales of fuel made through a card lock
network, the place at which the fuel is delivered is the
point of sale.
The bill defines "card lock system" as a system where
owners of unattended card lock fueling stations form a
network whereby customers may purchase fuel at any of the
network's participating fueling stations by use of a card
issued to the customer, and where prices are not posted at
the pump and no receipt is given at the time of delivery.
The bill would become effective January, 1 2015.
State Revenue Impact
None.
Comments
SB 983 -- 02/11/14 -- Page 3
1. Purpose of the bill . According to the author, "SB 983
will rightfully designate the point of sale for fuel
dispensed from card lock fuel systems as the point of
delivery of the fuel. Currently, the point of sale for
card lock fuel systems is designated at the place where
retail sales are consummated. Therefore, the Bradley Burns
portion of sales and use tax revenue goes to where the
sales office of the company is located, instead of where
the fuel is actually dispensed. The allocation of the
Bradley-Burns portion of sales and use tax revenue from
these transactions poses a problem for local governments
that house these fueling stations because there are a
significant number of negative secondary effects associated
with their use. Vehicles that utilize these stations are
generally semi-trucks, which are heavy in weight, therefore
causing substantial wear and tear to city or county streets
as well as traffic congestion and reduced air quality.
While vehicles are fueling up at over 1,000 locations in
cities throughout the state, less than 30 cities are
sharing in any of the Bradley-Burns portion of tax revenue
generated from these transactions, estimated at over $100
million. These revenues are better suited to help cities
where fueling takes place to offset pollution and
deterioration to their infrastructure. SB 983 hopes to
bring back equity to tax revenue allocation from these
transactions."
2. Constitutional Concerns. Section 25.5 of Article XIII
of the California Constitution prohibits the Legislature
from enacting a statute that would change the method of
distributing revenues derived under Bradley-Burns Uniform
Local Sales and Use Tax Law, as it read on November 3,
2004, except to comply with federal law or to allow the
state to participate in an interstate compact. Changing
the location of the sale from the place of consummation to
the place at which the fuel is delivered may be perceived
as changing the method of distributing revenues derived
under Bradley-Burns and that may invite legal challenges in
the future.
3. Administrative Changes. SB 983 requires the BOE to
notify affected taxpayers, register unattended card lock
stations, issue stations sub-permits, audit local tax
schedules, revise regulations and pamphlets, and answer
inquiries from industry and the public. BOE notes that the
cost of administration would be minor and absorbable.
SB 983 -- 02/11/14 -- Page 4
Under this bill, card lock network operators file an
additional local tax schedule in addition to the local tax
schedule already required. Filing the schedules may be
burdensome for card lock operators with numerous card lock
stations and affiliate stations located throughout the
state. For example, if a card lock network headquartered
in Small Town, CA owns 20 card lock stations located
throughout the state, under SB 983, the operator would have
to list all of 20 card lock stations, and apportion the
amount of fuel delivered at each location. Under current
law, the operator would only list Small Town, CA, where the
agreement was entered into.
4. Out of State Retailers. Out of state retailers with
card lock stations in California allocate Bradley-Burns tax
to the location of the card lock station supplying the
fuel. To the extent that SB 983 may be burdensome on
California retailers, out of state retailers already file
local tax schedules similar to those that would be required
under SB 983.
5. Shifting of Cash. SB 983 would not generate any
additional tax revenue in its totality, but would
significantly redistribute existing revenue. According to
estimates from BOE, the annual Bradley-Burns local tax from
California card lock sites is approximately $137 million.
BOE states that SB 983 would shift of $136 million in local
sales and use tax revenues from some local jurisdictions to
others, over 99% of the money collected from card lock fuel
sales under Bradley-Burns. BOE cannot calculate revenue
winners and losers. With such a large estimated shift in
revenues, this bill would create significant revenue losers
and winners for many cities and counties throughout
California.
6. Precedent. If this bill is enacted, other cities and
counties that host similarly structured industries may
sponsor legislation for similar treatment. This would
further alter the long standing allocation principles
contained in Bradley-Burns law.
7. Legislative History. AB 451 (Yee), Statutes of 2005,
Chapter 391, designated that the point of sale of jet fuel
is the point of delivery of that jet fuel to the aircraft.
SB 983 -- 02/11/14 -- Page 5
Support and Opposition (4/24/14)
Support : City of Atascadero; City of Baldwin Park; City of
Carson; City of Huntington Park; City of La Mirada; City of
La Puente; City of Rancho Cucamonga; City of South El
Monte; City of Upland; City of Vacaville.
Opposition : Auburn Chamber of Commerce; California
Independent Oil Marketers Association; City of Auburn; City
of Lancaster; City of Manhattan Beach; City of Modesto;
City of Sacramento; Flyers Energy.