BILL ANALYSIS �
PURSUANT TO SENATE RULE 29.10
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 983 HEARING: 5/28/14
AUTHOR: Hernandez FISCAL: No
VERSION: 5/21/14 TAX LEVY: No
CONSULTANT: Bouaziz
SALES AND USE TAXES: REVENUE SHARING AGREEMENT: CARD LOCK
SYSTEM
Removes card lock systems from the definition of buying
company.
Background and Existing Law
State law prohibits a local agency from entering into an
agreement that results in the payment, transfer, diversion,
or rebate of any Bradley-Burns local tax proceeds, when the
agreement results in a reduction of Bradley-Burns tax
proceeds received by another local agency from a retailer,
and that retailer continues to maintain a physical presence
within the jurisdiction of the originating local agency (SB
27, Hancock, 2009). State law provides that the above
prohibition does not apply to a buying company, which is a
separate legal entity created for the purpose of performing
administrative functions, including acquiring goods and
services for a parent entity.
Proposed Law
Senate Bill 983 excludes a retailer that contracts to sell
fuel through card lock system from the definition of a
buying company.
The bill defines "card lock system" as a system in which
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, where prices are not posted at the
pump, and no receipt is given at the time of delivery.
SB 983 -- 05/21/14 -- Page 2
The bill applies to agreements entered into on or after May
1, 2014 and would become effective January, 1 2015.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . According to the author, "The
Bradley Burns portion of sales and use tax revenue go to
the city where the sales office of the card lock fuel
system company is located, instead of cities that actually
house the fueling stations. The allocation of the Bradley
Burns portion of sales and use tax revenue from these
transactions pose a problem for local governments with
these fueling stations in their jurisdiction because there
are a significant number of negative secondary effects
associated with their utilization. The vehicles that
utilize these stations are generally semi-trucks, which are
heavy in weight, therefore causing substantial wear and
tear to city streets as well as traffic congestion and
reduced air quality. Vehicles are fueling up in over 1,000
locations in cities throughout the state, but approximately
only 30 cities are receiving any of the estimated $137
million in statewide Bradley Burns' portion of tax revenue
generated from these transactions. In a race to find new
revenue sources, some cities have become too willing to
offer generous rebate packages for these fuel companies to
move their sales offices into their city, rebating up to
65% of tax revenue, in some instances, at the expense of
other cities that actually maintain the physical presence
for these fueling stations. Prohibiting these types of
agreements ensures that cities will not be able to give
away public tax dollars to private oil companies and should
eliminate the incentive for card lock fuel companies to be
lured away by other cities."
2. Constitutional? Section 9 of Article I of the
California Constitution prohibits the passage of laws
impairing the obligation of contracts. SB 983 does not go
into effect until January 1, 2015. However, it would
retroactively apply to agreements entered into after May 1,
SB 983 -- 05/21/14 -- Page 3
2014, giving rise to the concern that the measure impairs
contracts entered into on or after May 1, 2014 and before
January 1, 2015. The committee may wish to consider
whether the bill's retroactive provisions invite legal
challenges.
3. Need for a buying company exception? Buying companies
allows retailers to purchase in bulk for companywide
supplies, allowing the company to benefit from economies of
scale. While the savings is beneficial to companies, there
is no sound public policy reason why buying companies
should be exempted from entering into rebate agreements.
The committee may wish to whether corporations other than
card lock systems should be allowed to continue to use the
"buying company" loophole.
4. Same problem, new solution . SB 983 originally
reallocated sales tax revenues based on the point of
delivery, like jet fuel. Sales tax revenue from card lock
fuel sales amount to $137 million dollars, and the original
bill would shift $136 million of local revenues statewide,
giving rise to constitutional concerns. However, the May
21st amendments removed card lock systems from the
definition of buying company under Government Code 53084.5
(a), effectively prohibiting card lock systems from
entering into agreements that result in the payment or
rebate of tax revenue to a retailer without shifting
Bradley-Burns sales and use tax throughout California. Due
to the substantial changes to SB 983, the bill has been
referred to committee pursuant to Senate Rule 29.10. At the
29.10 hearing, the committee may not amend the bill
further, and may either hold the bill, or return the bill
as approved by the committee to the Senate Floor.
The impetus for SB 983 is the "fiscalization of land use"
caused by situs-based sales tax allocation. The
fiscalization of land use leads to competition among cities
and counties to attract land uses that generate local
revenues and shun land uses that need expensive public
services. Some large retailers take advantage of the
fiscalization of land use to play one community against
others. Companies ask for subsidies to incentivize
relocation, moving their sales tax revenues from a
"sending" community to a "receiving" community. The
receiving community gets new revenue, but spends some of it
on the retailer; the subsidy to the retailer lowers its
SB 983 -- 05/21/14 -- Page 4
costs; and the sending community suffers the revenue loss.
Support and Opposition (05/27/14)
Support : None Received.
Opposition : None Received.