Existing law, as of July 1, 2010, exempts the sale of, and the storage, use, or other consumption of, motor vehicle fuel from specified sales and use taxes and increases the excise tax on motor vehicle fuel, as provided.

Existing law requires the State Board of Equalization, for the 201112 fiscal year and each fiscal year thereafter, on or before March 1 of the fiscal year immediately preceding the applicable fiscal year, to adjust the motor vehicle fuel tax rate in that manner as to generate an amount of revenue equal to the amount of revenue loss attributable to the sales and use tax exemption on motor vehicle fuel, based on estimates made by the board. Existing law also requires, in order to maintain revenue neutrality, the board to take into account actual net revenue gain or loss for the fiscal year ending prior to the rate adjustment date. Existing law requires this determined rate to be effective during the states next fiscal year.

This bill would, for the 201617 fiscal year and each fiscal year thereafter to the 202021 fiscal year, inclusive, on or before May 15 of the fiscal year immediately preceding the applicable fiscal year, instead require the Department of Finance to adjust the motor vehicle fuel tax rate as described above, and would require the department to notify the board of the rate adjustment effective for the states next fiscal year, as provided.

Existing law, as of July 1, 2011, increases the taxes on the sale of, and the storage, use, or other consumption of, diesel fuel, and reduces the excise tax on diesel fuel.

Existing law requires the board, for the 201213 fiscal year and each fiscal year thereafter, on or before March 1 of the fiscal year immediately preceding the applicable fiscal year, to adjust the diesel fuel tax rate by reducing it in that manner as to result in a revenue loss that will equal the amount of revenue gain attributable to the increase in the sales and use tax rate, based on estimates made by the board. Existing law also requires, in order to maintain revenue neutrality, the board to take into account actual net revenue gain or loss for the fiscal year ending prior to the rate adjustment date. Existing law requires this determined rate to be effective during the states next fiscal year.

This bill would, for the 201617 fiscal year and each fiscal year thereafter to the 202021 fiscal year, inclusive, on or before May 15 of the fiscal year immediately preceding the applicable fiscal year, instead require the Department of Finance to adjust the diesel fuel excise tax rate as described above, and would require the department to notify the board of the rate adjustment effective for the states next fiscal year, as provided.

Existing law defines the term board to mean the State Board of Equalization for purposes of the Revenue and Taxation Code.

This bill would make a technical, nonsubstantive change to that law.

Date of Hearing: July 13, 2015

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Philip Ting, Chair

SBPCA Bill Id:SB 433

Author:(Berryhill) – As Amended Ver:May 7, 2015

Majority vote. Fiscal committee.

SENATE VOTE: 38-0

SUBJECT: Motor vehicle fuel taxes: diesel fuel taxes: rates: adjustments

SUMMARY: Transfers responsibility for calculating the annual rate adjustments under the "fuel tax swap" from the State Board of Equalization (BOE) to the Department of Finance (DOF). Specifically, this bill:

1. Provides that, for the 2016-17 fiscal year (FY) to the 2020-21 FY, inclusive, the DOF shall, on or before May 15 of the FY immediately preceding the applicable FY, adjust the excise tax rate on:

   1. Motor vehicle fuel so as to generate an amount of revenue equal to the amount of revenue loss attributable to the partial sales and use tax (SUT) exemption; and,

   2. Diesel fuel so as to result in a revenue loss equal to the amount of revenue gain attributable to Revenue and Taxation Code (R&TC) Sections 6051.8 and 6201.8.

2. Provides that these adjustments shall be based on estimates the DOF makes, and that the adjusted rates shall be effective during the state's next FY.

3. Provides that, no later than May 15, 2016, and each May 15 thereafter to May 15, 2020, the DOF shall notify the BOE of the rate adjustments effective for the state's next FY.

EXISTING LAW:

1. Defines "motor vehicle fuel" under the Motor Vehicle Fuel Tax (MVFT) Law as gasoline and aviation gasoline. (R&TC Section 7326.) The term does not include jet fuel, diesel fuel, kerosene, liquefied petroleum gas, natural gas in liquid or gasesous form, alcohol, or racing fuel. (Id.)

2. Imposes, under the MVFT Law, an excise tax upon each gallon of fuel. (R&TC Section 7360.)

3. Provides, on and after July 1, 2010, a partial SUT exemption for "motor vehicle fuel", as defined in R&TC Section 7326. (R&TC Section 6357.7.)

4. Provides for the annual adjustment of the MVFT excise tax rate. Specifically, for the 2011-12 FY and each FY thereafter, the BOE must adjust the rate so as to generate revenues equalling the amount of revenue loss attibutable to the partial SUT exemption for motor vehicle fuel. This calculation is made annually by March 1, based on estimates made by the BOE, and the adjusted rate applies to the immediately following FY. (R&TC Section 7360(b)(2).)

5. Provides for a "true up" process to maintain revenue neutrality. Specifically, beginning with the rate adjustment calculated on or before March 1, 2012, the adjustment must also take into account the extent to which actual revenues derived resulted in a net revenue gain or loss for the FY ending prior to the rate adjustment date. (R&TC Section 7360(b)(3).)

6. Defines "diesel fuel" as any liquid that is commonly or commercially known or sold as a fuel that is suitable for use in a diesel-powered highway vehicle, as specified. (R&TC Section 60022.)

7. Imposes, under the Diesel Fuel Tax (DFT) Law, an excise tax upon each gallon of fuel. (R&TC Section 60050.)

8. Imposes an additional SUT on diesel fuel at the rate of 1.75%. (R&TC Sections 6051.8 and 6201.8.) Collected revenues from this additional tax are estimated by the BOE, with the concurrence of the DOF, and transferred quarterly to the Public Transportation Account in the State Transportation Fund for allocation, as specified.

9. Provides for the annual adjustment of the DFT excise tax rate. Specifically, for the 2012-13 FY and each FY thereafter, the BOE must adjust the rate so as to generate a revenue loss that will equal the amount of revenue gain attributable to the additional 1.75% SUT. This calculation is made annually by March 1, based on estimates made by the BOE, and the adjusted rate applies to the immediately following FY. (R&TC Section 60050(b)(2).)

10. Provides for a "true up" process to maintain revenue neutrality. Specifically, beginning with the rate adjustment on or before March 1, 2013, the adjustment must also take into account the extent to which actual revenues derived resulted in a net revenue gain or loss for the FY ending prior to the rate adjustment date. (R&TC Section 60050(b)(3).)

FISCAL EFFECT: Unknown

COMMENTS:

1. The author has provided the following statement in support of this bill:

SB 433 seeks to shift the responsibility of setting the gas and diesel excise tax rate from the BOE to the Department of Finance beginning in the 2016-17 fiscal year.

The Department already performs these calculations in the Governor's yearly budget, so no additional responsibility would be given, nor would the DOF require additional staff to do this. This bill would streamline the process by eliminating the duplication of efforts by the BOE and the DOF.

The Board of Equalization is an agency that collects taxes and performs tax audits. The agency was never intended to forecast prices on goods like gasoline.

2. This bill is supported by the BOE, which notes the following:

[SB 433] requires the DOF, instead of the BOE, to determine the annual excise tax rate adjustments for both gasoline and diesel fuel for a five-fiscal year period, after which the bill sunsets. This bill offers the following benefits:

Streamlines the fuel tax swap rate-setting. The BOE has worked closely with the DOF to determine a forecast for both consumption and fuel prices and adopts DOF's consumption forecast that is prepared for budget purposes to calculate the fuel tax swap rate. DOF rate-setting streamlines the process.

Avoids duplication. This bill shifts responsibility to the agency with more resources dedicated to economic forecasting, avoiding duplication of efforts.

BOE continues to provide information and assistance. BOE staff would continue to provide notices and information about the adjusted fuel tax rates to the taxpayers, affected industry, and the public.

Legislative options. The limited five-year period could allow the Legislature time to determine which agency can best perform the fuel tax swap calculations.

3. Committee Staff Comments

   1. The fuel tax swap: In 2010, the Legislature enacted two "fuel tax swap" measures that modified the state taxation of both gasoline and diesel fuels. [ABx8 6 (Committee on Budget), Chapter 11, Statutes of 2010 and SB 70 (Committee on Budget and Fiscal Review), Chapter 9, Statutes of 2010.] The gasoline tax changes became operative on July 1, 2010, while the diesel fuel tax changes became operative on July 1, 2011. According to the Senate Committee on Governance and Finance, the fuel tax swap was enacted partly to allow the use of additional existing transportation revenue for highway purposes, including general obligation bond debt service, where that debt service was related to transportation projects.

      1. The taxation of gasoline: The "fuel tax swap" exempted gasoline from the state General Fund SUT rate. To offset the revenue loss from this partial SUT exemption, the Legislature increased the gasoline excise tax rate from $0.18 per gallon to $0.353 per gallon.

      2. The taxation of diesel fuel: In contrast, the diesel fuel excise tax rate was reduced under the "fuel tax swap", from $0.18 per gallon to $0.13 per gallon. The Legislature correspondingly increased the SUT rate on diesel fuel to offset lost excise tax revenues, resulting in the following rates:

         1. 1.87% effective July 1, 2011;

         2. 2.17% effective July 1, 2012;

         3. 1.94% effective July 1, 2013; and,

         4. 1.75% effective July 1, 2014, and thereafter.

   2. Revenue neutrality: The "fuel tax swap" provisions require the BOE to maintain revenue neutrality so that the revenues derived from the increased gasoline excise tax and the increased SUT on diesel equals the revenues that would have been derived had the gasoline SUT partial exemption and the diesel fuel excise tax reduction, respectively, never occurred. Thus, R&TC Sections 7360 and 60050 require the BOE annually to adjust the gasoline and diesel fuel excise tax rates, respectively, either upward or downward, to maintain revenue neutrality. The BOE notes that its annual rate calculations also take into account the statutory "true up" requirements, which specify a one-year look back period to determine the difference between what was estimated for the previous FY and what was actually collected.

   3. The resulting rates: Since the enactment of the fuel tax swap, the BOE has adjusted the gasoline excise tax rate to maintain the required revenue neutrality through incremental increases and decreases as follows:

      1. July 1, 2011: Increase of $0.004;

      2. July 1, 2012: Increase of $0.003;

      3. July 1, 2013: Increase of $0.035;

      4. July 1, 2014: Decrease of $0.035; and,

      5. July 1, 2015: Decrease of $0.060.

The diesel fuel excise tax rate, in turn, has been adjusted as follows:

1. July 1, 2012: Decrease of $0.03;

2. July 1, 2013: Retain July 1, 2012 rate;

3. July 1, 2014: Increase of $0.01; and,

4. July 1, 2015: Increase of $0.02.

4. What would this bill do? This bill would require the DOF, instead of the BOE, to determine the annual excise tax rate adjustments for motor vehicle fuel and diesel under the "fuel tax swap" provisions for the next five FYs. While the DOF would be responsible for setting the excise tax rates, the BOE would maintain responsibility for notifying impacted taxpayers, industries, and the general public.

5. The BOE currently makes numerous rate calculations each year: As noted in its staff analysis of this bill, the BOE sets rates for a wide range of tax and fee programs it administers. BOE staff calculates these rates based on prescribed methodologies and the BOE members approve these rates annually in a public meeting. The following examples are merely illustrative:

   1. The tobacco products tax rate: Existing law imposes a tax on the distribution of tobacco products, based on the wholesale cost of these products, at a tax rate determined annually by the BOE, which is equivalent to the combined rate of tax imposed on cigarettes. (R&TC Section 30123.) Specifically, the BOE's annual calculation is based on the wholesale cost of tobacco products as of March 1, and applies during the state's next FY. (R&TC Section 30126.)

   2. The occupational lead poisoning prevention fee: Existing law requires specified industrial employers to pay an annual lead poisoning prevention fee to the BOE. As part of its administrative duties, the BOE receives information obtained by the California Blood Lead Registry regarding evidence of potential occupational lead poisoning by industry classification. Based on this information, the BOE then determines how to categorize employers based on the risk of elevated blood lead levels (i.e., a level equal to or exceeding 25 micrograms of lead per deciliter of blood). The BOE also adjusts the lead poisoning prevention fees annually to reflect increases or decreases in the cost of living during the prior FY as measured by the Consumer Price Index issued by the Department of Industrial Relations. (Health and Safety Code Section 105190.)

Given the wide array of taxes and fees the BOE administers and the relative complexities of the rate adjustments noted above, it seems doubtful that the annual excise tax adjustments for fuels is straining the BOE's technical capacities or personnel resources. The author's statement reflected in the Senate Governance and Finance Committee's analysis, however, suggests this bill is at least partly motivated by a desire to "de-politicize" the process of annually setting excise tax rates. Specifically, the author's statement notes, "Because the fuel tax rate is voted on by elected officials from different parties in a public hearing, the issue is often politicized."

Committee staff is not in a position to assess the accuracy of this assertion. On March 3, 2015, however, the California Taxpayers Association (CalTax) issued a news alert noting that the BOE had voted unanimously on February 24th to reduce the gasoline excise tax rate by $0.06, thereby "eschewing a staff recommendation to reduce the gas tax rate 7.5 cents per gallon . . . ." The CalTax alert went on to note:

Originally, BOE Vice Chair George Runner and BOE Member Diane Harkey voiced support for the staff's recommendation. Both also denounced the process by which the board determines the rate each year as irrational. Mr. Runner said motorists don't know how much of the price of gas represents taxes, but years ago the taxes imposed were posted on the pump. Ms. Harkey said the board should use the same methodology to reduce the tax that is used when it raised the tax two years ago.

Noting the spike in gas prices in February, BOE Member Fiona Ma said a 6-cent reduction is more realistic, and will mitigate a possible future rate increase that would have to be made if the price estimate is wrong. The compromise 6-cent reduction that she proposed was agreeable to all board members.

6. Related legislation: SB 321 (Beall) would require the BOE to adjust the gasoline excise tax rate to generate an amount of revenue equal to revenue losses due to the SUT exemption, based on estimates reflecting the combined average of the actual fuel price over the previous four FYs and the estimated fuel price for the current FY, as specified. SB 321 (Beall) will be heard by this Committee today.

REGISTERED SUPPORT / OPPOSITION:

Support

State Board of Equalization

Opposition

None on file

Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098

 THIRD READING 

Bill No: SB 433

Author: Berryhill (R)

Amended: 5/7/15

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 6-0, 4/22/15

AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach

NO VOTE RECORDED: Pavley

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT: Motor vehicle fuel taxes: diesel fuel taxes: rates: adjustments

SOURCE: Author

DIGEST: This bill requires the Department of Finance (DOF), instead of the Board of Equalization (BOE), to determine the annual the fuel tax swap rates.

Senate Floor Amendments of 5/7/15 add a sunset date, and delay both the rate adjustment and reporting date to May 15 each year.

ANALYSIS:

Existing law:

1. Requires BOE to annually adjust the gasoline and diesel fuel excise tax rates either upward or downward. For gasoline, the BOE determines: (a) whether the sales and use tax revenue loss related to the partial exemption was fully offset by the adjusted rate, and (b) the projected sales and use tax revenue loss for the next fiscal year, considering forecasted gasoline prices and consumption. For diesel fuel, BOE determines: (a) whether the revenue gain from the increased sales and use tax rate on diesel fuel sales and purchases was fully offset by the adjusted diesel fuel excise tax rate, and (b) the projected sales and use tax revenue gain for the next fiscal year, considering forecasted diesel fuel prices and consumption. By March 1 each year, BOE must determine the rate adjustments, and the adjusted rate applies on the following July 1.

2. Requires BOE to maintain revenue neutrality, so that the revenues derived from the increased gasoline excise tax and the increased diesel sales and use tax equals the revenues that would have been derived had the gasoline sales and use tax partial exemption and the diesel fuel excise tax reduction, respectively, not occurred.

3. Requires BOE Members approve these rates annually in a public meeting.

This bill:

1. Requires DOF beginning on May 15, 2016, and every May 15 going forward, to annually calculate and adjust the gasoline and diesel tax rates.

2. Requires DOF to notify BOE of the calculated rates by May 15, 2016, and each May 15 thereafter.

3. Becomes effective January 1, 2016.

4. Becomes inoperative July 1, 2021.

Background

In 2010, the Legislature enacted two “fuel tax swap” measures that changed the imposition and rates of state taxes on gasoline and diesel fuel, and require BOE to annually determine the appropriate excise tax rate adjustments to maintain revenue neutrality (ABX8-6, Committee on Budget, Chapter 11, Eighth Extraordinary Session) and (SB 70, Committee on Budget and Fiscal Review, Chapter 9). The gasoline tax changes became operative on July 1, 2010, and the diesel fuel tax changes on July 1, 2011.

The fuel tax swap was partly enacted, to allow the use of additional existing transportation revenue for highway purposes, including General Obligation bond debt service, where that debt service was related to transportation projects.

The swap bills exempted sales and purchases of gasoline from the state sales and use tax rate. To offset the revenue loss related to this partial exemption, the law increased the gasoline excise tax rate from $0.18 per gallon to $0.353 per gallon. Conversely, the bills reduced the diesel fuel excise tax rate from $0.18 to $0.13 per gallon, but increased the sales and use tax rate on diesel fuel sales to offset the loss related from the reduction, resulting in the following rates:

• 1.87%, effective July 1, 2011,

• 2.17%, effective July 1, 2012,

• 1.94%, effective July 1, 2013,

• 1.75%, effective July 1, 2014, and thereafter.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT: (Verified 5/5/15)

Board of Equalization

OPPOSITION: (Verified 5/5/15)

None received

ARGUMENTS IN SUPPORT: According to the author, “The determination of the gasoline and diesel fuel excise tax rate is a ministerial function that the Department of Finance (DOF) already calculates in the Governor’s yearly budget. The Board of Equalization (BOE) staff simply calculate a ‘true-up’ of the DOF calculation to set the tax rate. Because the fuel tax rate is voted on by elected officials from different parties in a public hearing, the issue is often politicized. Additionally, the BOE is an agency that collects taxes and performs tax audits. The agency was not designed to forecast prices on goods like gasoline. SB 433 will shift the responsibility of setting the gasoline and diesel fuel excise tax rate to the DOF beginning in the 2016-17 fiscal year. The Department already performs these calculations, so no additional responsibility would be given to the DOF. SB 433 will make this process less political and help reduce redundancy in state government.”

Prepared by: Myriam Bouaziz / GOV. & F. / (916) 651-4119

5/22/15 14:04:40

**** END ****

 THIRD READING  

Bill No: SB 433

Author: Berryhill (R)

Amended: 4/6/15

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 6-0, 4/22/15

AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach

NO VOTE RECORDED: Pavley

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT: Motor vehicle fuel taxes: diesel fuel taxes: rates: adjustments

SOURCE: Author

DIGEST: This bill requires the Department of Finance (DOF), instead of the Board of Equalization (BOE), to determine the annual the fuel tax swap rates.

ANALYSIS:

Existing law:

1. Requires BOE to annually adjust the gasoline and diesel fuel excise tax rates either upward or downward. For gasoline, the BOE determines: (a) whether the sales and use tax revenue loss related to the partial exemption was fully offset by the adjusted rate, and (b) the projected sales and use tax revenue loss for the next fiscal year, considering forecasted gasoline prices and consumption. For diesel fuel, BOE determines: (a) whether the revenue gain from the increased sales and use tax rate on diesel fuel sales and purchases was fully offset by the adjusted diesel fuel excise tax rate, and (b) the projected sales and use tax revenue gain for the next fiscal year, considering forecasted diesel fuel prices and consumption. By March 1 each year, BOE must determine the rate adjustments, and the adjusted rate applies on the following July 1.

2. Requires BOE to maintain revenue neutrality, so that the revenues derived from the increased gasoline excise tax and the increased diesel sales and use tax equals the revenues that would have been derived had the gasoline sales and use tax partial exemption and the diesel fuel excise tax reduction, respectively, not occurred.

3. Requires BOE Members approve these rates annually in a public meeting.

This bill:

1. Requires DOF beginning on March 1, 2016, and every March 1 going forward, to annually calculate and adjust the gasoline and diesel tax rates.

2. Requires DOF to notify BOE of the calculated rates by March 10, 2016, and each March 10 thereafter.

3. Becomes effective January 1, 2016.

Background

In 2010, the Legislature enacted two “fuel tax swap” measures that changed the imposition and rates of state taxes on gasoline and diesel fuel, and require BOE to annually determine the appropriate excise tax rate adjustments to maintain revenue neutrality (ABX8-6, Assembly Committee on Budget, Chapter 11, Eighth Extraordinary Session) and (SB 70, Senate Committee on Budget and Fiscal Review, Chapter 9). The gasoline tax changes became operative on July 1, 2010, and the diesel fuel tax changes on July 1, 2011.

The fuel tax swap was partly enacted, to allow the use of additional existing transportation revenue for highway purposes, including General Obligation bond debt service, where that debt service was related to transportation projects.

The swap bills exempted sales and purchases of gasoline from the state sales and use tax rate. To offset the revenue loss related to this partial exemption, the law increased the gasoline excise tax rate from $0.18 per gallon to $0.353 per gallon. Conversely, the bills reduced the diesel fuel excise tax rate from $0.18 to $0.13 per gallon, but increased the sales and use tax rate on diesel fuel sales to offset the loss related from the reduction, resulting in the following rates:

• 1.87%, effective July 1, 2011,

• 2.17%, effective July 1, 2012,

• 1.94%, effective July 1, 2013,

• 1.75%, effective July 1, 2014, and thereafter.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT: (Verified 5/5/15)

Board of Equalization

OPPOSITION: (Verified 5/5/15)

None received

ARGUMENTS IN SUPPORT: According to the author, “The determination of the gasoline and diesel fuel excise tax rate is a ministerial function that the Department of Finance (DOF) already calculates in the Governor’s yearly budget. The Board of Equalization (BOE) staff simply calculate a ‘true-up’ of the DOF calculation to set the tax rate. Because the fuel tax rate is voted on by elected officials from different parties in a public hearing, the issue is often politicized. Additionally, the BOE is an agency that collects taxes and performs tax audits. The agency was not designed to forecast prices on goods like gasoline. SB 433 will shift the responsibility of setting the gasoline and diesel fuel excise tax rate to the DOF beginning in the 2016-17 fiscal year. The Department already performs these calculations, so no additional responsibility would be given to the DOF. SB 433 will make this process less political and help reduce redundancy in state government.”

Prepared by: Myriam Bouaziz / GOV. & F. / (916) 651-4119

5/6/15 16:49:46

**** END ****

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Robert M. Hertzberg, Chair

2015 - 2016 Regular

MOTOR VEHICLE FUEL TAXES: DIESEL FUEL TAXES: RATES: ADJUSTMENTS

Requires the Department of Finance (DOF), instead of the Board of Equalization (BOE), to determine the annual the fuel tax swap rates.

Background and Existing Law

The BOE determines and sets rates for various tax and fee programs it administers, such as the tobacco products tax rate, diesel interstate users tax rate, hazardous substances program fees, and the occupational lead poisoning prevention fee. These rates are calculated by BOE staff based on prescribed methodologies. The BOE Members approve these rates annually in a public meeting.

Fuel Tax Swap

In 2010, the Legislature enacted two “fuel tax swap” measures that changed the imposition and rates of state taxes on gasoline and diesel fuel, and require the Board of Equalization (BOE) to annually determine the appropriate excise tax rate adjustments to maintain revenue neutrality (ABx8 6, Assembly Committee on Budget, 2010) and (SB 70, Senate Committee on Budget and Fiscal Review). The gasoline tax changes became operative on July 1, 2010, and the diesel fuel tax changes on July 1, 2011.

The fuel tax swap was partly enacted, to allow the use of additional existing transportation revenue for highway purposes, including General Obligation bond debt service, where that debt service was related to transportation projects.

The swap bills exempted sales and purchases of gasoline from the state sales and use tax rate. To offset the revenue loss related to this partial exemption, the law increased the gasoline excise tax rate from $0.18 per gallon to $0.353 per gallon. Conversely, the measure reduced the diesel fuel excise tax rate from $0.18 to $0.13 per gallon, but increased the sales and use tax rate on diesel fuel sales to offset the loss related from the reduction, resulting in the following rates:

• 1.87%, effective July 1, 2011,

• 2.17%, effective July 1, 2012,

• 1.94%, effective July 1, 2013,

• 1.75%, effective July 1, 2014, and thereafter.

The fuel tax swap provisions require BOE to maintain revenue neutrality, so that the revenues derived from the increased gasoline excise tax and the increased diesel sales and use tax equals the revenues that would have been derived had the gasoline sales and use tax partial exemption and the diesel fuel excise tax reduction, respectively, not occurred.

To maintain revenue neutrality, state law requires BOE to annually adjust the gasoline and diesel fuel excise tax rates either upward or downward. For gasoline, the BOE determines: (1) whether the sales and use tax revenue loss related to the partial exemption was fully offset by the adjusted rate, and (2) the projected sales and use tax revenue loss for the next fiscal year, considering forecasted gasoline prices and consumption. For diesel fuel, the BOE determines: (1) whether the revenue gain from the increased sales and use tax rate on diesel fuel sales and purchases was fully offset by the adjusted diesel fuel excise tax rate, and (2) the projected sales and use tax revenue gain for the next fiscal year, considering forecasted diesel fuel prices and consumption. By March 1 each year, the BOE must determine the rate adjustments and the adjusted rate applies on the following July 1.

Proposed Law

Senate Bill 433 requires the Department of Finance (DOF) beginning on March 1, 2016 and ever March 1 going forward, to annually calculate and adjust the gasoline and diesel tax rates. SB 433 requires DOF to notify BOE of the calculated rates by March 10, 2016, and each March 10 thereafter.

This bill becomes effective January 1, 2016.

State Revenue Impact

None.

Comments

1. Purpose of the bill. According to the author, “The determination of the gasoline and diesel fuel excise tax rate is a ministerial function that the Department of Finance (DOF) already calculates in the Governor’s yearly budget. The Board of Equalization (BOE) staff simply calculate a “true-up” of the DOF calculation to set the tax rate. Because the fuel tax rate is voted on by elected officials from different parties in a public hearing, the issue is often politicized. Additionally, the BOE is an agency that collects taxes and performs tax audits. The agency was not designed to forecast prices on goods like gasoline. SB 433 will shift the responsibility of setting the gasoline and diesel fuel excise tax rate to the DOF beginning in the 2016-17 fiscal year. The Department already performs these calculations, so no additional responsibility would be given to the DOF. SB 433 will make this process less political and help reduce redundancy in state government.”

2. Why? It is unclear why DOF and not BOE should be responsible for annually calculating the fuel tax swap rates. Although DOF currently provides the yearly fuel consumption estimates and forecasted prices to determine the rates, BOE has the relationship with taxpayers and would continue to provide notices and information about the adjusted fuel tax rates. Additionally, BOE would continue to set rates for several other tax and fee programs.

3. Related legislation. Senate Bill 321 amends the method BOE uses to adjust the fuel tax swap rates. The bill was approved by the Committee on April 15, 2015.

Support and Opposition

(4/16/15)

Support: Unknown.

Opposition: Unknown.

-- END --