BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 653 (Steinberg)
Hearing Date: 05/16/2011 Amended: 04/27/2011
Consultant: Mark McKenzie Policy Vote: G&F 6-2
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BILL SUMMARY: SB 653 would authorize counties and school
districts to impose a local personal income tax, vehicle license
fee (VLF), transactions and use tax, extractive business
activities tax, oil severance tax, and excise tax, with voter
approval.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
Local revenue gains Unknown, very major revenue gains to
Local
counties and school districts that impose
one or more local taxes (see staff
comments)
FTB one-time costs Unknown significant startup costs to
establish General
procedures and mechanisms for
administering
local income taxes
(reimbursement likely impractical)
FTB ongoing costs All ongoing administrative costs paid by
local Local
taxing entities on a reimbursement basis
BOE one-time costs Unknown significant fixed startup
costsGeneral
that exceed reimbursement authority
BOE ongoing costs Preparatory costs for each new tax reimb-
Local
ursed as they are incurred, and ongoing
administrative costs reimbursed upon
collection
SB 653 (Steinberg)
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DOC: certify stripper wells Annual costs of up to $3,200
if all wells General/
require certification Special*
DMV: VLF administration$116 one-time programming costs, ongoing
Special**
costs reimbursed by local taxing entities
Tax revenue loss Maximum one-time loss of $150,000 if
allGeneral
(VLF deductions) counties impose 1.35% VLF (losses
reimbursed
in the following year)
____________
* Oil, Gas, and Geothermal Administrative Fund
** Motor Vehicle Account
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
This bill would authorize each of the 58 counties and
approximately 1,000 school districts, subject to limitations of
the California Constitution, to levy, increase, or extend any of
the following taxes, upon voter approval of a local ordinance or
resolution:
A local personal income tax at a maximum rate of 1% of
taxable income.
A local vehicle license fee of up to 1.35%.
A transactions and use tax that would be excluded from
the 2% combined county and city rate limit in current law.
An excise tax, including but not limited to a local
alcoholic beverage tax of 5 cents per drink, as specified,
a local cigarette and tobacco products tax of 5 cents per
cigarette, as specified, a local sweetened beverage tax of
1 cent per ounce, as specified, and a local medical
marijuana tax.
A local tax on extractive business activities at a rate
of up to 2% of the wholesale value per unit measure.
A local oil severance tax of up to 10% of the gross
value of the product, as specified.
The bill requires the Department of Motor Vehicles (DMV) to
administer the local VLF, the Franchise Tax Board (FTB) to
administer the local income tax, and the Board of Equalization
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(BOE) to administer the local transactions and use tax, various
excise taxes, and the oil severance tax. A local taxing entity
may either administer a specified excise tax on its own behalf
or through a contract with BOE. Staff notes that the bill is
silent on the administration of the local medical marijuana tax
and other unspecified excise taxes, as well as the local tax on
extractive business activities.
Total local revenue gains would depend upon the number of
entities imposing a tax, which local taxes are imposed, and the
rates of those taxes. For example, if the following taxes were
imposed statewide at the specified rates, annual local revenue
gains would be:
1% personal income tax on all residents: $8 billion
0.5% transactions and use tax: $2.2 billion
1.35% VLF on all vehicles: $4.6 billion
2% oil severance tax: $378 million
5 cents per cigarette ($1 per pack): $813 million
5 cents per drink alcoholic beverage tax: $16.1 million
Revenue impact of a 1 cent per ounce sweetened beverage
tax is unknown
The bill would require a local taxing entity to contract with
FTB for the administration of a local income tax approved by
voters. FTB indicates that additional staff and General Fund
resources would be necessary to implement the bill without
adversely affecting existing revenue generating functions. The
reimbursement structure established in the bill would require
FTB to incur significant costs until the local income tax
generated new revenues sufficient to provide reimbursement by
the local entity. It is unlikely that the first county or
school district that imposes a local income tax would be able to
cover FTB's one-time implementation costs in their entirety, and
reimbursement for these one-time costs would be impractical.
All ongoing administrative costs would be paid on a
reimbursement basis.
With respect to the local excise tax authority provided in the
bill, the local entity would have the option of either
administering the tax on its own behalf or contracting with BOE,
as specified. Any costs that BOE would incur in preparing to
administer the tax, up to a cap of $175,000, would be reimbursed
as costs are incurred. All ongoing BOE costs would be
reimbursed from revenues collected. Staff notes that the bill
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does not address how BOE would be reimbursed for its one-time
fixed startup costs to implement any new local excise tax
program. It would be infeasible to impose these costs onto the
first county or school district that imposed a local excise tax,
and these costs would easily exceed the cap of $175,000 for
preparatory costs identified in the bill.
Staff notes a concern that a taxpayer could be subject to
multiple levels of local taxation if, for instance, that person
is geographically located in the boundaries of a county, an
elementary school district, and a high school district that each
impose a tax authorized by this bill. This would be most likely
to occur with the local personal income tax and certain local
excise taxes.
The oil severance tax provisions of SB 653 provide for an
exemption for oil produced by a "stripper well" in which the
average value of oil as of January 1 of the prior year is less
than $30 per barrel price of California oil. A stripper well is
defined as a well certified by the Department of Conservation
(DOC) as incapable of producing an average of more than 10
barrels of oil per day during an entire month. The bill would
require DOC to provide notification of all wells that have been
certified as a stripper well. DOC indicates that it would incur
additional costs of approximately $4.1 million in the initial
year and $3.2 million ongoing for 22 new staff to certify the
estimated 30,000 stripper wells in the state.
SB 653 would require DMV to administer a local VLF imposed by a
county or school district, and would require the taxing entity
to contract with DMV to reimburse the department for all costs
incurred in the administration and operation of a local VLF.
DMV indicates that it would incur one-time programming costs of
$116,000 to prepare for the administration of a local VLF prior
to collecting any revenues. Ongoing costs would be reimbursed
by the local taxing entity from revenues collected. Staff
notes, however, that DMV could also incur additional
unreimbursable costs related to the discount fees the department
pays to credit card companies, based on the vehicle transaction
amount, for each registration renewal processed online with a
credit card. Total annual transaction fees could be as high as
$14.5 million annually.
Existing law provides that the VLF, which is effectively a
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property tax on vehicles, is deductible for both the state and
federal income tax purposes. SB 653 would require FTB to
estimate General Fund losses attributable to each county or
school district that imposed a local tax that is deductible on
income tax returns. Each local taxing agency would be required
to reimburse the state for any losses due to deductions allowed
for that fiscal year. FTB estimates that the revenue impact
related to VLF deductions would be $150 million annually if all
counties imposed this local tax. These amounts would be
reimbursed in the following year, resulting in a one year
General Fund impact.
Staff recommends that the bill be amended to address the
numerous technical and implementation concerns noted by BOE and
FTB.