BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      AB 1032


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          ASSEMBLY THIRD READING


          AB  
          1032 (Salas)


          As Introduced  February 26, 2015


          Majority vote


           ------------------------------------------------------------------ 
          |Committee       |Votes |Ayes                |Noes                 |
          |                |      |                    |                     |
          |                |      |                    |                     |
          |----------------+------+--------------------+---------------------|
          |Revenue &       |9-0   |Ting, Brough,       |                     |
          |Taxation        |      |Dababneh, Gipson,   |                     |
          |                |      |Roger Hernández,    |                     |
          |                |      |Mullin, Patterson,  |                     |
          |                |      |Quirk, Wagner       |                     |
          |                |      |                    |                     |
          |----------------+------+--------------------+---------------------|
          |Appropriations  |17-0  |Gomez, Bigelow,     |                     |
          |                |      |Bonta, Calderon,    |                     |
          |                |      |Chang, Daly,        |                     |
          |                |      |Eggman, Gallagher,  |                     |
          |                |      |                    |                     |
          |                |      |                    |                     |
          |                |      |Eduardo Garcia,     |                     |
          |                |      |Gordon, Holden,     |                     |
          |                |      |Jones, Quirk,       |                     |
          |                |      |Rendon, Wagner,     |                     |
          |                |      |Weber, Wood         |                     |
          |                |      |                    |                     |
          |                |      |                    |                     |
           ------------------------------------------------------------------ 








                                                                      AB 1032


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          SUMMARY:  Provides that, where tax is not imposed on dyed blended  
          biodiesel fuel upon removal from the terminal rack, if tax was  
          previously imposed on the biodiesel fuel portion, then a claim for  
          refund is allowed for the tax paid on that biodiesel fuel.   
          Specifically, this bill:  


          1)Provides that the claim for refund shall only be allowed to the  
            extent a supplier can show that the tax on that biodiesel fuel  
            has been paid by the same supplier. 
          2)Makes other technical and conforming changes to the Diesel Fuel  
            Tax Law.


          EXISTING LAW: 


          1)Imposes a tax, under the Diesel Fuel Tax Law, upon the removal,  
            entry, sale, delivery, or specified use of diesel fuel, at a  
            specified rate per gallon.  


          2)Provides for a reimbursement of the amount of the tax to persons  
            who have used tax-paid fuel for specified nontaxable uses, which  
            is allowed through a claim for refund.  


          FISCAL EFFECT:  According to the Assembly Appropriations  
          Committee:


          1)Minor and absorbable administrative costs to the Board of  
          Equalization (BOE).


          2)Had this bill been in effect the previous two fiscal years,  
            estimated General Fund refunds for overpayment of diesel tax  








                                                                      AB 1032


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            fuel would have been $779,000 and $2,829,000 for Fiscal Year  
            (FY) 2012-13 and FY 2013-14, respectively.


          COMMENTS:  


          1)The author has provided the following statement in support of  
            this bill:
               The Diesel Fuel Tax Law imposes a per gallon tax  
               upon the removal, entry, sale, or delivery of  
               diesel fuel.  The law allows for an exemption (via  
               tax refund) when diesel is dyed and intended for  
               off-highway use such as for machinery and equipment  
               used for farming, mining, logging, and  
               construction.  


               Biodiesel, often sold when blended with traditional  
               petroleum diesel, is considered to be a diesel fuel  
               and subject to the same taxes.  Therefore,  
               biodiesel is taxed upon its entry into California  
               or its removal from a refinery or distribution  
               facility.  However, when the tax-paid biodiesel is  
               blended with tax-exempt diesel fuel, the biodiesel  
               portion is not provided the same tax exempt status  
               for off-highway uses...


               While current law allows reimbursement for tax paid  
               on diesel fuel intended for off-highway uses that  
               has been taxed more than once, it does not account  
               for tax-paid biodiesel blends.  In such cases, the  
               supplier is unable to recover the tax from the  
               customer and is also unable to seek reimbursement  
               for the tax from the Board of Equalization. 


               AB 1032 seeks to remedy this by creating a refund  








                                                                      AB 1032


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               mechanism for amounts of tax paid on the biodiesel  
               fuel portion of dyed blended biodiesel fuel removed  
               from an approved refinery or distribution facility  
               if a supplier can show that the tax on that  
               biodiesel fuel has been paid by the same supplier.   



          2)Committee Comments:
             a)   The Diesel Fuel Tax Law:  Under the Diesel Fuel Tax Law, a  
               per-gallon excise tax is imposed on the removal of diesel  
               fuel at the refinery or terminal rack, upon entry into  
               California, or upon sale to an unlicensed person.  
               Existing law defines a "terminal" as a distribution facility  
               supplied by pipeline or vessel, from which the diesel fuel  
               may be removed at the rack.  The term also includes a diesel  
               fuel production facility (i.e., a refinery) with storage  
               facilities not supplied by pipeline or vessel.  These diesel  
               fuel production facilities have the same licensing and  
               reporting requirements as those terminals supplied by  
               pipeline or vessel.


               Generally, a "supplier" of diesel fuel owes the excise tax at  
               the time the fuel is removed from the terminal rack.   
               However, if the diesel fuel enters California outside of the  
               bulk transfer/terminal system (i.e., "below the rack" by  
               train or truck), the excise tax is due upon entry into  
               California.


               The term "supplier" includes, among others, a person owning  
               fuel in a terminal (i.e., a "position holder"), a refiner, an  
               importer, a blender, and a terminal operator.  The BOE  
               requires suppliers to be licensed and to file monthly returns  
               or information reports detailing the amount of fuel entered,  
               received, removed, and stored.










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             b)   Exemptions and refunds:  Certain sales by diesel fuel  
               suppliers are exempt from the excise tax, including sales for  
               use outside California, and sales of dyed diesel fuel.  Thus,  
               certain parties may claim a credit or refund for tax paid on  
               fuel that is subsequently used in a nontaxable manner.
             c)   Biodiesel:  Under California law, biodiesel is considered  
               to be a diesel fuel and is subject to the excise tax on  
               diesel fuel.  The fuel industry generally describes biodiesel  
               according to the applicable percentage of biodiesel blended  
               with petroleum diesel.  For example, "B5" would represent a  
               blend comprised of 95% petroleum diesel and 5% biodiesel.  


               Most domestically produced biodiesel comes from the Midwest.   
               Because distribution of this biodiesel occurs outside of the  
               normal bulk transfer/terminal system, the excise tax applies  
               upon the fuel's entry into California.  As such, the  
               "enterer" is responsible for the diesel fuel tax when the  
               fuel enters California.  Biodiesel that is produced in  
               California, on the other hand, is generally taxed upon  
               removal from the fuel production facility.  


               In either case, when another supplier makes a subsequent  
               purchase of this tax-paid biodiesel to create a blended  
               diesel fuel, the tax-paid biodiesel fuel is blended with  
               "ex-tax" diesel fuel.  When this blended fuel is subsequently  
               removed from the terminal rack, it results in tax being  
               assessed twice on the biodiesel portion.  In such cases, the  
               state allows the supplier to claim a credit on their return.   



               Some suppliers, however, have been unable to obtain a credit  
               or refund for taxes paid on biodiesel that enters California,  
               or is produced in-state, and is delivered into their  
               terminals as tax-paid, but is subsequently removed at the  
               terminal rack for a nontaxable purpose.  In other words,  
               while current law allows reimbursement for tax paid on diesel  








                                                                      AB 1032


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               fuel that has been taxed more than once, the current  
               statutory regime does not account for tax-paid diesel fuel  
               that is taxed coming into the terminal but removed for  
               nontaxable purposes (i.e., dyed biodiesel blends).  In such  
               cases, the supplier is unable to recover the tax from the  
               customer and is also unable to seek reimbursement for the tax  
               from the BOE.  Since the tax-paid biodiesel portion is  
               blended with ex-tax dyed diesel fuel, it is not subject to  
               taxation when removed from the terminal rack.  Because there  
               is no subsequent taxable event with which to claim the  
               credit, the current statute does not provide for a  
               reimbursement of the tax-paid portion of the biodiesel.


             d)   What would this bill do?  This bill allows a diesel fuel  
               tax refund to a supplier for that portion of tax-paid  
               biodiesel fuel removed from the terminal rack as a dyed  
               biodiesel blend.


          Analysis Prepared by:                                               
                          M. David  Ruff / REV. & TAX. / (916) 319-2098  FN:  
          0000662