SB 1086: Sales and Use Tax Law: motor vehicle fuel tax: sales price: gross receipts.
- Session Year: 2023-2024
- House: Senate
- Latest Version Date: 2024-02-12
Current Status:
Failed
(2024-04-10: April 10 set for first hearing. Failed passage in committee. (Ayes 2. Noes 4. Page 3563.) Reconsideration granted.)
Introduced
In Committee
First Chamber
In Committee
Second Chamber
Enacted
What does this bill do?
The bill excludes the state motor vehicle fuel tax from the price used to compute sales and use taxes on motor vehicle fuel. That change affects fuel retailers and people who buy gasoline by preventing sales tax from being charged on the portion of the pump price that is the fuel tax.
The summary is provided by generative AI which can make mistakes. For original language, please view the details in the table below.
Existing sales and use tax laws impose taxes on retailers measured by gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state, measured by sales price. The Sales and Use Tax Law defines the term gross receipts for these purposes to mean the total amount of the sale or lease or rental price of the retail sales of retailers, valued in money, whether received in money or otherwise, as specified, unless an exclusion applies. The Sales and Use Tax Law defines the term sales price for these purposes to mean the total amount for which tangible personal property is sold or leased or rented, valued in money, whether received in money or otherwise, as specified, unless an exclusion applies.
The Motor Vehicle Fuel Tax Law, administered by the California Department of Tax and Fee Administration, imposes a tax upon each gallon of motor vehicle fuel removed from a refinery or terminal rack in this state, entered into this state, or sold in this state, at a specified rate per gallon. Existing sales and use tax laws provide a partial exemption from the taxes imposed by those laws for motor vehicle fuel that is subject to the taxes imposed by the Motor Vehicle Fuel Tax Law.
This bill, beginning January 1, 2025, would exclude from the terms gross receipts and sales price under the Sales and Use Tax Law the amount of any motor vehicle fuel tax imposed pursuant to the Motor Vehicle Fuel Tax Law.
This bill would take effect immediately as a tax levy.
(a)Sales price means the total amount for which tangible personal property is sold or leased or rented, as the case may be, valued in money, whether paid in money or otherwise, without any deduction on account of any of the following:
(1)The cost of the property sold.
(2)The cost of materials used, labor or service cost, interest charged, losses, or any other expenses.
(3)The cost of transportation of the property, except as excluded by other provisions of this section.
(b)The total amount for which the property is sold or leased or rented includes all of the following:
(1)Any services that are a part of the sale.
(2)Any amount for which credit is given to the purchaser by the seller.
(3)The amount of any tax imposed by the United States upon producers and importers of gasoline and the amount of any tax imposed pursuant to Part 2 (commencing with Section 7301) of this division.
(c)Sales price does not include any of the following:
(1)Cash discounts allowed and taken on sales.
(2)The amount charged for property returned by customers when that entire amount is refunded either in cash or credit, but this exclusion shall not apply in any instance when the customer, in order to obtain the refund, is required to purchase other property at a price greater than the amount charged for the property that is returned. For the purpose of this section, refund or credit of the entire amount shall be deemed to be given when the purchase price less rehandling and restocking costs are refunded or credited to the customer. The amount withheld for rehandling and restocking costs may be a percentage of the sales price determined by the average cost of rehandling and restocking returned merchandise during the previous accounting cycle.
(3)The amount charged for labor or services rendered in installing or applying the property sold.
(4)(A)The amount of any tax (not including, however, any manufacturers or importers excise tax, except as provided in subparagraph (B)) imposed by the United States upon or with respect to retail sales whether imposed upon the retailer or the consumer.
(B)The amount of manufacturers or importers excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code for which the purchaser certifies that he or she the purchaser is entitled to either a direct refund or credit against his or her the purchasers income tax for the federal excise tax paid or for which the purchaser issues a certificate pursuant to Section 6245.5.
(5)The amount of any tax imposed by any city, county, city and county, or rapid transit district within the State of California upon or with respect to retail sales of tangible personal property, measured by a stated percentage of sales price or gross receipts, whether imposed upon the retailer or the consumer.
(6)The amount of any tax imposed by any city, county, city and county, or rapid transit district within the State of California with respect to the storage, use or other consumption in that city, county, city and county, or rapid transit district of tangible personal property measured by a stated percentage of sales price or purchase price, whether the tax is imposed upon the retailer or the consumer.
(7)Separately stated charges for transportation from the retailers place of business or other point from which shipment is made directly to the purchaser, but the exclusion shall not exceed a reasonable charge for transportation by facilities of the retailer or the cost to the retailer of transportation by other than facilities of the retailer. However, if the transportation is by facilities of the retailer, or the property is sold for a delivered price, this exclusion shall be applicable solely with respect to transportation which occurs after the purchase of the property is made.
(8)Charges for transporting landfill from an excavation site to a site specified by the purchaser, either if the charge is separately stated and does not exceed a reasonable charge or if the entire consideration consists of payment for transportation.
(9)The amount of any motor vehicle, mobilehome, or commercial coach fee or tax imposed by and paid the State of California that has been added to or is measured by a stated percentage of the sales or purchase price of a motor vehicle, mobilehome, or commercial coach.
(10)(A)The amount charged for intangible personal property transferred with tangible personal property in any technology transfer agreement, if the technology transfer agreement separately states a reasonable price for the tangible personal property.
(B)If the technology transfer agreement does not separately state a price for the tangible personal property, and the tangible personal property or like tangible personal property has been previously sold or leased, or offered for sale or lease, to third parties at a separate price, the price at which the tangible personal property was sold, leased, or offered to third parties shall be used to establish the retail fair market value of the tangible personal property subject to tax. The remaining amount charged under the technology transfer agreement is for the intangible personal property transferred.
(C)If the technology transfer agreement does not separately state a price for the tangible personal property, and the tangible personal property or like tangible personal property has not been previously sold or leased, or offered for sale or lease, to third parties at a separate price, the retail fair market value shall be equal to 200 percent of the cost of materials and labor used to produce the tangible personal property subject to tax. The remaining amount charged under the technology transfer agreement is for the intangible personal property transferred.
(D)For purposes of this paragraph, technology transfer agreement means any agreement under which a person who holds a patent or copyright interest assigns or licenses to another person the right to make and sell a product or to use a process that is subject to the patent or copyright interest.
(11)The amount of any tax imposed upon diesel fuel pursuant to Part 31 (commencing with Section 60001).
(12)(A)The amount of tax imposed by any Indian tribe within the State of California with respect to a retail sale of tangible personal property measured by a stated percentage of the sales or purchase price, whether the tax is imposed upon the retailer or the consumer.
(B)The exclusion authorized by subparagraph (A) shall only apply to those retailers who are in substantial compliance with this part.
(13)Beginning on January 1, 2025, the amount of any tax imposed under Part 2 (commencing with Section 7301).
SEC. 2.Section 6012 of the Revenue and Taxation Code is amended to read:6012.(a)Gross receipts mean the total amount of the sale or lease or rental price, as the case may be, of the retail sales of retailers, valued in money, whether received in money or otherwise, without any deduction on account of any of the following:
(1)The cost of the property sold. However, in accordance with any rules and regulations as the board department may prescribe, a deduction may be taken if the retailer has purchased property for some other purpose than resale, has reimbursed his or her its vendor for tax which the vendor is required to pay to the state or has paid the use tax with respect to the property, and has resold the property prior to making any use of the property other than retention, demonstration, or display while holding it for sale in the regular course of business. If that deduction is taken by the retailer, no refund or credit will be allowed to his or her the retailers vendor with respect to the sale of the property.
(2)The cost of the materials used, labor or service cost, interest paid, losses, or any other expense.
(3)The cost of transportation of the property, except as excluded by other provisions of this section.
(4)The amount of any tax imposed by the United States upon producers and importers of gasoline and the amount of any tax imposed pursuant to Part 2 (commencing with Section 7301) of this division.
(b)The total amount of the sale or lease or rental price includes all of the following:
(1)Any services that are a part of the sale.
(2)All receipts, cash, credits credits, and property of any kind.
(3)Any amount for which credit is allowed by the seller to the purchaser.
(c)Gross receipts do not include any of the following:
(1)Cash discounts allowed and taken on sales.
(2)Sale price of property returned by customers when that entire amount is refunded either in cash or credit, but this exclusion shall not apply in any instance when the customer, in order to obtain the refund, is required to purchase other property at a price greater than the amount charged for the property that is returned. For the purpose of this section, refund or credit of the entire amount shall be deemed to be given when the purchase price less rehandling and restocking costs are refunded or credited to the customer. The amount withheld for rehandling and restocking costs may be a percentage of the sales price determined by the average cost of rehandling and restocking returned merchandise during the previous accounting cycle.
(3)The price received for labor or services used in installing or applying the property sold.
(4)(A)The amount of any tax (not including, however, any manufacturers or importers excise tax, except as provided in subparagraph (B)) imposed by the United States upon or with respect to retail sales whether imposed upon the retailer or the consumer.
(B)The amount of manufacturers or importers excise tax imposed pursuant to Section 4081 or 4091 of the Internal Revenue Code for which the purchaser certifies that he or she the purchaser is entitled to either a direct refund or credit against his or her the purchasers income tax for the federal excise tax paid or for which the purchaser issues a certificate pursuant to Section 6245.5.
(5)The amount of any tax imposed by any city, county, city and county, or rapid transit district within the State of California upon or with respect to retail sales of tangible personal property measured by a stated percentage of sales price or gross receipts whether imposed upon the retailer or the consumer.
(6)The amount of any tax imposed by any city, county, city and county, or rapid transit district within the State of California with respect to the storage, use use, or other consumption in that city, county, city and county, or rapid transit district of tangible personal property measured by a stated percentage of sales price or purchase price, whether the tax is imposed upon the retailer or the consumer.
(7)Separately stated charges for transportation from the retailers place of business or other point from which shipment is made directly to the purchaser, but the exclusion shall not exceed a reasonable charge for transportation by facilities of the retailer or the cost to the retailer of transportation by other than facilities of the retailer. However, if the transportation is by facilities of the retailer, or the property is sold for a delivered price, this exclusion shall be applicable solely with respect to transportation which occurs after the sale of the property is made to the purchaser.
(8)Charges for transporting landfill from an excavation site to a site specified by the purchaser, either if the charge is separately stated and does not exceed a reasonable charge or if the entire consideration consists of payment for transportation.
(9)The amount of any motor vehicle, mobilehome, or commercial coach fee or tax imposed by and paid to the State of California that has been added to or is measured by a stated percentage of the sales or purchase price of a motor vehicle, mobilehome, or commercial coach.
(10)(A)The amount charged for intangible personal property transferred with tangible personal property in any technology transfer agreement, if the technology transfer agreement separately states a reasonable price for the tangible personal property.
(B)If the technology transfer agreement does not separately state a price for the tangible personal property, and the tangible personal property or like tangible personal property has been previously sold or leased, or offered for sale or lease, to third parties at a separate price, the price at which the tangible personal property was sold, leased, or offered to third parties shall be used to establish the retail fair market value of the tangible personal property subject to tax. The remaining amount charged under the technology transfer agreement is for the intangible personal property transferred.
(C)If the technology transfer agreement does not separately state a price for the tangible personal property, and the tangible personal property or like tangible personal property has not been previously sold or leased, or offered for sale or lease, to third parties at a separate price, the retail fair market value shall be equal to 200 percent of the cost of materials and labor used to produce the tangible personal property subject to tax. The remaining amount charged under the technology transfer agreement is for the intangible personal property transferred.
(D)For purposes of this paragraph, technology transfer agreement means any agreement under which a person who holds a patent or copyright interest assigns or licenses to another person the right to make and sell a product or to use a process that is subject to the patent or copyright interest.
(11)The amount of any tax imposed upon diesel fuel pursuant to Part 31 (commencing with Section 60001).
(12)(A)The amount of tax imposed by any Indian tribe within the State of California with respect to a retail sale of tangible personal property measured by a stated percentage of the sales or purchase price, whether the tax is imposed upon the retailer or the consumer.
(B)The exclusion authorized by subparagraph (A) shall only apply to those retailers who are in substantial compliance with this part.
(13)Beginning on January 1, 2025, the amount of any tax imposed under Part 2 (commencing with Section 7301).
For
(d)For purposes of the sales tax, if the retailers establish to the satisfaction of the board that the sales tax has been added to the total amount of the sale price and has not been absorbed by them, the total amount of the sale price shall be deemed to be the amount received exclusive of the tax imposed. Section 1656.1 of the Civil Code shall apply in determining whether or not the retailers have absorbed the sales tax.
SEC. 3.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
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Date
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Status
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| Apr 10, 2024 | April 10 set for first hearing. Failed passage in committee. (Ayes 2. Noes 4. Page 3563.) Reconsideration granted. |
| Mar 19, 2024 | Set for hearing April 10. |
| Feb 21, 2024 | Referred to Com. on REV. & TAX. |
| Feb 13, 2024 | From printer. May be acted upon on or after March 14. |
| Feb 12, 2024 | Introduced. Read first time. To Com. on RLS. for assignment. To print. |
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Date
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Description
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Location
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Votes
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|---|---|---|---|---|
| Apr 10, 2024 | [First] hearing set for [04-10-2024]: Failed passage in Committee. Reconsideration granted | Senate Standing Committee on Revenue and Taxation |
Passed |
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| Apr 10, 2024 | Do pass, but first be re-referred to the Committee on [Appropriations] | Senate Standing Committee on Revenue and Taxation |
Failed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
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Organization
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Position
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Date
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|---|---|---|
| California Taxpayers Association | ** Support | |
| Howard Jarvis Taxpayers Association | * Support | Apr 10, 2024 |
SENATE COMMITTEE ON REVENUE AND TAXATION
Senator Steven Glazer, Chair
2023 - 2024 Regular
Bill No: | SB 1086 | Hearing Date: | 4/10/24 |
Author: | Seyarto | Tax Levy: | Yes |
Version: | 2/12/24 | Fiscal: | Yes |
Consultant: | Grinnell | ||
Sales and Use Tax Law: motor vehicle fuel tax: sales price: gross receipts
Removes the motor vehicle fuel tax from the definitions of “sales price” and “gross receipts” for purposes of the sales and use tax.
Background
Fuel taxes. State law imposes the motor vehicle fuel tax and diesel fuel tax on each gallon of fuel entered or removed from a refinery or terminal rack in this state. The law parallels federal fuel excise taxes, currently $0.184 per gallon tax on gasoline and a $0.244 per gallon tax on diesel fuel, and applies whenever fuel:
- Is removed at the refinery or terminal rack;
- Enters into the state; or
- Is sold to an unlicensed person.
Section Two of Article XIX of the California Constitution provides that revenues from taxes the state imposes on motor vehicle fuels less refunds and costs of administration must be deposited into the Highway Users Tax Account. State law further distributes revenue from the diesel fuel tax into the State Transportation Fund to construct and maintain public roads and mass transit systems, while motor vehicle fuel tax revenues flow to the State Transportation Fund to construct and maintain public roads and mass transit systems, airports, and waterways.
Fuel tax rates. In 1990, voters approved Proposition 111, which increased the tax rate on most motor vehicle fuels from $0.09 to $0.14 per gallon, effective August 1, 1990. The initiative further increased the excise tax rate by $0.01 per gallon per year until the rate reached $0.18 per gallon on January 1, 1994, where it remained until the Legislature enacted the “fuel tax swap.”
In the late 2000s, general fund revenues deteriorated significantly due to the financial crisis and ensuing economic recession. The Legislature enacted the fuel tax swap to shift past and future debt service repayments on general obligation bonds issued for transportation purposes from the General Fund to fuel excise tax funds (ABx6 8, Committee on Budget, 2010). ABx6 8 exempted sales of motor vehicle fuel, except for aviation fuel, from the state share of the sales and use tax imposed on sales of gasoline, where the use of revenues was restricted by Proposition 42 (2004). ABx6 8 then increased the excise tax rate by $0.173 to generate an equal amount of revenue in the excise tax funds, which were not restricted by Proposition 42 and could be spent on debt service. Local sales taxes remained at 2.25% of the sales price of gasoline, plus any voter-approved district taxes.
To maintain revenue neutrality under the fuel tax swap, ABx6 8 directed the State Board of Equalization (BOE) to annually adjust the excise tax rates for gasoline and diesel, so the overall revenues derived from the swap remained the same. BOE calculated an adjustment to the excise tax, which is measured as a flat amount per gallon, to equal the amount of revenues from sales and use taxes, which apply based on a percentage of the sales prices, would have been but for the swap. As a result, the motor vehicle fuel tax rate increased $0.17 to $0.35 on July 1, 2010, to compensate for the removal of the state share of the sales and use tax rate that was measured at 6% of the sales price. When voters approved Propositions 22 and 26 in November, 2010, the Legislature reenacted the swap in 2011, with some modifications (AB 105, Committee on Budget).
SB 1. In response to a significant deferred maintenance backlog on California’s streets and roads, the Legislature enacted SB 1 (Beall, 2017), which made several changes to motor vehicle fuel taxes, and directed its revenue to road maintenance and construction. Specifically, SB 1:
- Increased the excise tax on gasoline by $0.12 per gallon, starting November 1, 2017;
- Eliminated the annual adjustment required by the "Gas Tax Swap," on July 1, 2019, instead re-establishing the $0.173 per gallon rate set in ABx6 8; and
- Requires BOE to adjust motor vehicle and diesel excise tax rates, other than the diesel sales tax, annually based on the California Consumer Price Index (CCPI).
Sales and use taxes. State law imposes the sales tax on every retailer “engaged in business in this state” that sells tangible personal property, and requires them to register with the California Department of Fee & Tax Administration (CDTFA), and remit taxes collected from purchasers to CDTFA. Sales tax applies whenever a retail sale occurs, which is generally any sale other than one for resale in the regular course of business.
The current rate is 7.25% as shown in the table below. Additionally, cities, counties, and specified special districts may increase the sales and use tax, also known as district or transactions and use taxes.
Rate | Jurisdiction | Purpose/Authority | |
|---|---|---|---|
3.9375% | State (General Fund) | State general purposes | |
1.0625% |
| Local governments to fund local public safety services | |
0.50% | State (1991 Realignment) | Local governments to fund health and welfare programs | |
0.50% | State (Proposition 172 - 1993) | Local governments to fund public safety services | |
1.25% | Local (City/County) 1.00% City and County | City and county general operations. Dedicated to county transportation purposes | |
7.25% | Total Statewide Rate |
The law defines “gross receipts” and “sales price” to include the total amount of the sale or lease or rental price, without any deduction on account of the cost of the property sold, cost of materials used, labor or service costs, interest charged, losses, or any other expenses related to the sale of the property. “Gross receipts” and “sales price” include some taxes and fees, such as taxes on cannabis, cigarettes and tobacco products taxes, but excludes others, such as excise taxes on e-cigarettes. However, the motor vehicle fuel tax is part of gross receipts from the sale for sales tax purposes, so it is included in the sales price for use tax purposes, as is the federal fuel excise tax in most cases. As mentioned above, sales of motor vehicle fuel are exempt from the state share of the sales and use tax (5%), but not the local share.
Aviation Jet Fuel. The same tax law that imposes the motor vehicle fuel excise tax imposes a separate tax on the sale of aviation jet fuel at the rate of $0.02 per gallon upon each gallon of fuel sold to a jet fuel user or used by the dealer. The law defines aircraft jet fuel as any inflammable liquid which is used or sold for use in propelling aircraft operated by the jet or turbine type of engine. Unlike aviation fuel, which is fully exempt from state and local sales and use taxes, airline jet fuel is subject to the sales and use tax, unless sold to an air common carrier for immediate consumption or shipment in the conduct of its business as an air common carrier, on an international flight.
Arguing that including motor vehicle fuel taxes in the sales and use tax base is double taxation, the author wants to remove them.
Proposed Law
Senate Bill 1086 removes the motor vehicle fuel tax, including the tax on aviation jet fuel, from the definitions of “sales price” and “gross receipts” for purposes of the sales and use tax. The measure states its exemption applies on or after January 1, 2025. The bill also makes technical and grammatical changes.
State Revenue Impact
CDTFA estimates revenue losses of $151.5 million in 2024-25 and $307.2 million in FY 2025-26, almost entirely to local agencies because sales of motor vehicle fuel are exempt from the State General Fund and Local Revenue Fund increments of the sales and use tax. However, because Aviation Jet Fuel is not exempt, SB 1086 results in state General Fund revenue losses of $78,000 in 2024-25, and $164,000 in 2025-26.
Comments
1. Purpose of the bill. According to the author, “I see the double taxation on fuel as an unfair burden on Californians and believe it's time for a change. This is more than just a policy for me; it's a commitment to fairness and transparency. Removing the Motor Vehicle Fuel Tax from the sales tax calculation isn't just about saving money - it's about restoring trust in our tax system and standing up for the hardworking people of our state.”
2. In or out? State law imposes several kinds of excise taxes on specific products: motor vehicle fuel, cigarette and tobacco products, alcoholic beverages, cannabis, e-cigarettes, and most recently, sales of firearms, firearm precursor parts, and ammunition (AB 28, Gabriel, 2023), among others. For the most part, the sales and use tax base includes excise taxes, but that is not always the case. Generally, including an excise tax within the sales and use tax base increases the final price to the consumer, but also revenue to the state and local agencies. For the motor vehicle fuel tax, the impact of removing the excise tax from the sales tax would be less because sales of fuels are already exempt from the state share of the sales use tax. However, almost all revenue losses resulting from SB 1086 accrue to local agencies because of the exemption. Additionally, while SB 1086 would prevent double taxation of one product – motor vehicle fuel – the Legislature would need to amend several other excise tax laws to prevent double taxation in all cases. The Committee may wish to consider the tradeoffs for local agency revenue and tax policy consistency posed by SB 1086.
3. Gas prices. After a record price of $6.438 per gallon on June 14, 2022, the current average price for a gallon of regular unleaded gasoline in California is $5.12, according to AAA. The national average is $3.53 per gallon.
4. Related exemption. In 2022, the Legislature enacted a state General Fund-only sales and use tax exemption (3.9375%) on the sale, storage, use, or other consumption for diesel fuel, commencing October 1, 2022 and ending June 30, 2023 (AB 194, Committee on Budget). The bill backfilled transportation tax funds from the state General Fund for any revenue losses.
Support and Opposition
(4/5/24)
Support: California Taxpayers Association
Opposition: None submitted.
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Discussed in Hearing
7MIN
Senate Standing Committee on Revenue and Taxation
Bill Author
