BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON TRANSPORTATION AND HOUSING
                              Senator Jim Beall, Chair
                                2015 - 2016  Regular 

          Bill No:          AB 1032           Hearing Date:     6/23/2015
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          |Author:   |Salas                                                 |
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          |Version:  |2/26/2015                                             |
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          |Urgency:  |No                     |Fiscal:      |Yes             |
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          |Consultant|Eric Thronson                                         |
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          SUBJECT:  Diesel Fuel Tax Law:  reimbursements


           DIGEST:  This bill provides for a refund of the excise tax paid  
          on biodiesel that is blended with tax-exempt diesel fuel.

          ANALYSIS:
          
          Biodiesel is an alternative vehicle fuel that contains no  
          petroleum and is produced from renewable resources, such as palm  
          oil or used vegetable oil.  If biodiesel is combined with  
          petroleum diesel, the resulting fuel is referred to as Bxx where  
          xx equals the percentage of biodiesel in the fuel.  Thus, B5  
          refers to fuel that is 5% renewable diesel and 95% petroleum  
          diesel.

          Under California law, biodiesel is considered to be a diesel  
          fuel and is subject to the excise tax on diesel fuel.   
          Currently, the total excise tax paid on a gallon of diesel is 11  
          cents per gallon and on July 1 of this year will be 13 cents.   
          State law, known as the "gas tax swap," requires the State Board  
          of Equalization (BOE) to adjust annually the excise tax on  
          diesel.  

          Typically, the state collects the diesel excise tax when a  
          tanker truck picks up the diesel from a refinery or distribution  
          terminal (known as "the rack") or when it enters the state via  
          truck or rail.  

          Existing law exempts diesel from the state excise tax if it is  







          AB 1032 (Salas)                                    Page 2 of ?
          
          
          used for purposes other than operating motor vehicles upon the  
          public streets and highways and a very few limited on-highway  
          uses.  When diesel fuel is not taxed at the rack, then it is  
          dyed to make its illegal use on road easier for law enforcement  
          to discover.  Untaxed diesel is often referred to as dyed  
          diesel. 

          Those who buy taxed diesel, but do not use it for a taxable  
          purpose, are eligible for a refund of the amount of tax paid.   
          To receive the refund, a taxpayer applies to the BOE, which  
          processes and issues the refunds, typically as part of the  
          taxpayer's annual return with the board.

          This bill makes a supplier of dyed biodiesel eligible for a  
          refund of the diesel excise tax that the supplier paid prior to  
          the biodiesel being blended with dyed diesel and removed from  
          the rack as tax-exempt.

          COMMENTS:

          1)Purpose.  According to the author, this bill provides a  
            necessary and widely agreed upon solution to a tax policy  
            oversight in existing law.

          2)Background.  Most domestically produced biodiesel comes from  
            the Midwest.  Typically, 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 the  
            state.  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 - B5 for example - the tax-paid biodiesel fuel is blended  
            with 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.  

            If, however, it is blended with tax-exempt (i.e., dyed) diesel  
            fuel, then it leaves the rack without paying the excise tax.   
            In this case, suppliers have been unable to obtain a credit or  
            refund for taxes paid on that biodiesel.  In other words,  
            while current law allows reimbursement for tax paid on diesel  








          AB 1032 (Salas)                                    Page 3 of ?
          
          
            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.

            According to the sponsor, this bill helps level the playing  
            field for biodiesel in the state.  The biodiesel industry  
            estimates that the current problem in existing law may be  
            effectively preventing biodiesel from being blended into  
            15-30% of the diesel volume in the state.  This bill will  
            remove the tax hurdle and presumably increase the amount of  
            biodiesel used in California.

          3)Double-referral.  The Rules Committee has referred this bill  
            to both this committee and the Governance and Finance  
            Committee.  Therefore, if the bill passes this committee, it  
            will be referred to the Committee on Governance and Finance.
          
          Related Legislation:
          
          AB 2757 (Bocanegra, Statutes of 2014) - identical to this bill,  
          provided for a refund of the excise tax paid on biodiesel that  
          is blended with tax-exempt diesel fuel.  AB 2757 was unanimously  
          approved by this committee on June 16, 2014, before it was  
          gut-and-amended to address an unrelated issue.

          AB 2756 (Assembly Committee on Revenue and Taxation, Statutes of  
          2014) - initially involved certification of county assessors,  
          but was amended to include the language in this bill late in the  
          session.  AB 2756 was vetoed by the governor; the veto message,  
          however, related only to the assessor language and not to  
          content of this bill.

          Assembly Votes:

            Floor:    80-0
            Appr:     17-0
            R&T:        9-0

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










          AB 1032 (Salas)                                    Page 4 of ?
          
          
            POSITIONS:  (Communicated to the committee before noon on  
          Wednesday,
                          June 17, 2015.)
          
            SUPPORT:  

          California Biodiesel Alliance
          California Independent Oil Marketers Association

          OPPOSITION:

          None received


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