April 29, 2014 SB 983 (HERNANDEZ) LOCAL SALES TAXES: CARD LOCK FUEL: PLACE OF SALE Senate Governance and Finance Committee Hearing Tomorrow, Wednesday, April 30, 2014/ 9:30 am, State Capitol, Room 112 Purpose of this communication SB 983 proposes to change the place of sale for card lock fuel. After sending our March 20 th communication on this issue MuniServices has spoken with many city representatives to better understand how the proposed changes to current law will affect their individual local jurisdictions from a revenue perspective. Cities are also interested and concerned about the broader discussion stemming from SB 983 since the bill infringes on local control and local decision-making. The deadline has passed for notation of positions to be reflected in the Senate Governance and Finance Committee analysis, however, cities should continue to send position letters citing specific concerns or suggestions, if they decide to do so. The current analysis is included below. Our Government Relations team will continue to assist individual clients in determining the bill s fiscal impact and to provide draft letters. The bill s hearing will be attended by local government representatives with varying positions and also carried live via the web at www.sen.ca.gov. The members of the Committee are Senators Lois Wolk (Chair), Steve Knight (Vice Chair), Ed Hernandez (author), Jim Beall, Mark DeSaulnier, Carol Liu, and Mimi Walters. About SB 983 (as introduced) Under the Bradley-Burns Uniform Local Sales and Use Tax Law, all retail sales are consummated at the place of business of the retailer, unless otherwise specified. Under SB 983 the place of sale for fuel from a card lock system would shift from the place where the sale was negotiated to the point of delivery of fuel to the vehicle. Card lock pumps may generate what a small gas station generates annually from gas, only. Card locks do not have convenience stores. SB 983 defines "card lock system" as a system where owners of unattended card lock fueling stations form a network. Under this system, customers may then purchase fuel at any of the network's participating fueling stations by use of a card issued to the customer, there are no posted gas prices and a receipt is not given at the time of delivery. Developing a solution within the local government family We appreciate the conversation that has stemmed from SB 983. MuniServices does not support many types of sales tax rebates, especially when the revenue from the sales tax is taken away from one jurisdiction and given to another, however we are strong proponents of local control and believe that these types of decisions are best left to each city, especially the flexibility and ability to retain and attract business which is a critical city decision. We agree with the League of California Cities as outlined in their Revenue and Taxation Committee April 3 rd report that any changes to the current system should be carefully weighed both for potential benefits as well as negative impacts on those agencies that have made decisions and rely on revenue based upon existing rules. Precedents and potential legal challenges MuniServices supported Proposition 1A (2004). Changing the location of the sale from the place of consummation to the place at which the fuel is delivered may be interpreted to violate Proposition 1A as the proposal changes the method of distributing revenues derived under Bradley-Burns. The bill may invite legal challenges in the future. If SB 983 became law this may open the door to other bills being introduced in the future that redistribute Bradley-Burns sales tax, further destabilizing a jurisdiction s revenue base. Updating the local tax system The core issue of SB 983 is a symptom of a bigger problem in that California has an outdated local tax system. Cities are faced with a shrinking economic base to fund basic services. SB 983 is the pursuit of a legislative remedy over what amounts to the revenue generated by a small gas station (without a convenience store). Bradley-Burns is a law put in place in 1955 that worked when shopping took place mostly in storefronts. The current sales tax structure only taxes 30% of the true tax base, which creates a challenge for true economic development and the maintenance of local control. From a policy perspective, we continue to be cautious about this bill s implications, especially for those local agencies with current contracts or those planning to establish agreements. On April 3 rd the League s Revenue and Taxation Committee discussed the bill and the broader issue with respect to point of sale and agreed to put the issue over until its June 19 th meeting in Sacramento. Fran Mancia, VP, Government Relations 800.800.8181 (5013) fran.mancia@muniservices.com Brenda Narayan, Director of Government Relations 800.800.8181 (5014) brenda.narayan@muniservices.com www.muniservices.com
Source: (WWW.leginfo.ca.gov) BILL ANALYIS SENATE GOVERNANCE & FINANCE COMMITTEE Senator Lois Wolk, Chair BILL NO: SB 983 HEARING: 4/30/2014 AUTHOR: Hernandez FISCAL: Yes VERSION: 2/11/14 TAX LEVY: No CONSULTANT: Bouaziz CARD LOCK FUEL: PLACE OF SALE Designates the point of sale for fuel dispensed from card lock systems as the point of delivery of the fuel. Background and Existing Law State Law authorizes counties, under the Bradley-Burns law, to impose a local sales and use tax of up to 1 percent on tangible personal property sold at retail in the county, or purchased outside the county for use in the county. All cities and counties within California have adopted ordinances under the terms of the Bradley-Burns Law and levy the 1 percent local tax. Cities can impose a sales and use tax rate of up to 1 percent, credited against the county rate so that the combined rate does not exceed 1 percent. The State Board of Equalization (BOE) administers these taxes. Of the 1 percent tax, 0.75 percent is used to support general operations and the remaining 0.25 percent is designated by statute for county transportation purposes. Bradley-Burns law specifies the "place of sale" for purposes of the local sales tax. In general, all retail sales in California are consummated at the place of business of the retailer. If a retailer has only one place of business in California, the local sales tax derived from sales consummated at that place of business is transmitted to the city, county, or city and county in which the retailer's place of business is located. If a retailer has more than one place of business in the State, BOE regulation specifies that the sale occurs at the place of business where the principal negotiations are carried on. Out of state retailers that negotiate sales outside of California, allocate the local tax in one of two ways. If the out of state retailer is engaged in business in this state, the local tax is allocated to the location of the retailer's in-state location. If the out of state retailer is not engaged in business in this state, the local tax is allocated to the location of the headquarters of the California based business the retailer has contracted with. A card lock network fuel system is comprised of self-service fuel stations and at least one sales office. The card lock network contracts with commercial, industrial, and governmental fleets to provide fuel at both
stations owned by the card lock system and affiliate stations not owned by card lock network. Customers are issued cards which allow them to receive fuel at any of the fuel stations owned by the card lock network or affiliated with the card lock system. The contracts are negotiated between the customer and the card lock network prior to the delivery of the fuel. At card lock fueling stations, fuel prices are generally not posted at the pump, and if prices are posted, they do not apply to the sale of fuel to card lock customers. Proposed Law Senate Bill 983 specifies that, for purposes of allocating the local tax on sales of fuel made through a card lock network, the place at which the fuel is delivered is the point of sale. The bill defines "card lock system" as a system where owners of unattended card lock fueling stations form a network whereby customers may purchase fuel at any of the network's participating fueling stations by use of a card issued to the customer, and where prices are not posted at the pump and no receipt is given at the time of delivery. The bill would become effective January, 1 2015. State Revenue Impact None. Comments 1. Purpose of the bill. According to the author, "SB 983 will rightfully designate the point of sale for fuel dispensed from card lock fuel systems as the point of delivery of the fuel. Currently, the point of sale for card lock fuel systems is designated at the place where retail sales are consummated. Therefore, the Bradley Burns portion of sales and use tax revenue goes to where the sales office of the company is located, instead of where the fuel is actually dispensed. The allocation of the Bradley-Burns portion of sales and use tax revenue from these transactions poses a problem for local governments that house these fueling stations because there are a significant number of negative secondary effects associated with their use. Vehicles that utilize these stations are generally semi-trucks, which are heavy in weight, therefore causing substantial wear and tear to city or county streets as well as traffic congestion and reduced air quality. While vehicles are fueling up at over 1,000 locations in cities throughout the state, less than 30 cities are sharing in any of the Bradley-Burns portion of tax revenue generated from these transactions, estimated at over $100 million. These revenues are better suited to help cities where fueling takes place to offset pollution and deterioration to their infrastructure. SB 983 hopes to bring back equity to tax revenue allocation from these transactions." 2. Constitutional Concerns. Section 25.5 of Article XIII of the California Constitution prohibits the Legislature from enacting a statute that would change the method of distributing revenues derived under Bradley-Burns Uniform
Local Sales and Use Tax Law, as it read on November 3, 2004, except to comply with federal law or to allow the state to participate in an interstate compact. Changing the location of the sale from the place of consummation to the place at which the fuel is delivered may be perceived as changing the method of distributing revenues derived under Bradley-Burns and that may invite legal challenges in the future. 3. Administrative Changes. SB 983 requires the BOE to notify affected taxpayers, register unattended card lock stations, issue stations sub-permits, audit local tax schedules, revise regulations and pamphlets, and answer inquiries from industry and the public. BOE notes that the cost of administration would be minor and absorbable. Under this bill, card lock network operators file an additional local tax schedule in addition to the local tax schedule already required. Filing the schedules may be burdensome for card lock operators with numerous card lock stations and affiliate stations located throughout the state. For example, if a card lock network headquartered in Small Town, CA owns 20 card lock stations located throughout the state, under SB 983, the operator would have to list all of 20 card lock stations, and apportion the amount of fuel delivered at each location. Under current law, the operator would only list Small Town, CA, where the agreement was entered into. 4. Out of State Retailers. Out of state retailers with card lock stations in California allocate Bradley-Burns tax to the location of the card lock station supplying the fuel. To the extent that SB 983 may be burdensome on California retailers, out of state retailers already file local tax schedules similar to those that would be required under SB 983. 5. Shifting of Cash. SB 983 would not generate any additional tax revenue in its totality, but would significantly redistribute existing revenue. According to estimates from BOE, the annual Bradley-Burns local tax from California card lock sites is approximately $137 million. BOE states that SB 983 would shift of $136 million in local sales and use tax revenues from some local jurisdictions to others, over 99% of the money collected from card lock fuel sales under Bradley-Burns. BOE cannot calculate revenue winners and losers. With such a large estimated shift in revenues, this bill would create significant revenue losers and winners for many cities and counties throughout California. 6. Precedent. If this bill is enacted, other cities and counties that host similarly structured industries may sponsor legislation for similar treatment. This would further alter the long standing allocation principles contained in Bradley-Burns law. 7. Legislative History. AB 451 (Yee), Statutes of 2005, Chapter 391, designated that the point of sale of jet fuel is the point of delivery of that jet fuel to the aircraft.
Support and Opposition (4/24/14) Support: City of Atascadero; City of Baldwin Park; City of Carson; City of Huntington Park; City of La Mirada; City of La Puente; City of Rancho Cucamonga; City of South El Monte; City of Upland; City of Vacaville. Opposition: Auburn Chamber of Commerce; California Independent Oil Marketers Association; City of Auburn; City of Lancaster; City of Manhattan Beach; City of Modesto; City of Sacramento; Flyers Energy.