With the looming threat of a veto of the gas tax-sales tax swap (ABX8 6, Assembly Budget Committee) passed by Democrats earlier this month, the Legislature responded March 22 by approving a three-bill package more acceptable to the governor.
Included in the package was a fix of drafting errors in the original gas tax-sales tax swap that would have increased taxes on off-road diesel fuel users and aircraft fuel. The drafting errors are a direct result of the highly criticized gut-and-amend process used to pass the bills without proper vetting through committees, and without input from taxpayers who would be affected.
SB 70 (Senate Budget and Fiscal Review Committee) amends the original gas tax-sales tax swap bill to provide that the 1.75 percent sales tax on diesel fuel does not apply to specified off-highway users, and that the gas excise tax increase of 17.3 cents per gallon does not apply to aircraft fuel.
Rounding out the package were bills to re-establish a housing tax credit (AB 183, Caballero) and to allow taxpayers to apply for a sales tax exemption for machinery and equipment purchased for alternative energy-related activities or development of advanced transportation technologies (SB 71, Padilla).
The new sales tax exemption for specified machinery will be administered by the California Alternative Energy and Advanced Transportation Financing Authority. While it is a full state and local exemption, it covers only a limited universe of personal property. To qualify, the property must be used for the design, manufacture, production, or assembly of advanced transportation technologies or alternative source products, components or systems. "Alternative source products, components or systems" includes cogeneration technology, energy conservation, solar, biomass, wind, geothermal, specified hydro-electric, or any other energy-efficient technologies that reduce the use of fossil and nuclear fuels. Alternative sources also include advanced electric distributive generation technology and energy storage technology.
The bill also has criteria for the transportation financing authority to use in evaluating applications for sales tax exemptions.
After these bills were approved by the Legislature, Governor Arnold Schwarzenegger signed ABX8 6 on March 22. The governor then signed SB 70 on March 23, and SB 71 was signed March 24. AB 183 was signed March 25.
Even with the corrections, the sales tax-gas tax swap does not track with the proposal originally suggested by the governor. His original plan reflected Proposition 98 savings due to the reduction of general fund revenues (from the repeal of the sales tax on gas). ABX8 6 pretends, for Proposition 98 purposes, that the sales tax on gasoline is not repealed.
Another difference is that the governor wanted to raise the gas tax by a smaller amount than in ABX8 6 to ensure that no one will pay more in taxes. ABX8 6 offsets the sales tax reduction dollar for dollar by higher gas taxes. Proponents claim that no one will pay more in taxes. (Cal-Tax: Actually, the swap means those who buy "regular" gasoline will pay higher taxes and those who buy "premium" gasoline will get a tax reduction.)
In signing the gas tax-sales tax swap, Governor Schwarzenegger said:
"Earlier today, the Legislature passed a measure to fix technical problems with the gas tax swap bill and passed two key tax reductions as part of my jobs package. The package of bills as written will provide significant benefit to the state's general fund and will help put Californians back to work. For these reasons, I am signing these bills. …
"I commend the Legislature for acting today on the $200 million homeowners' tax credit. This successful program will lower taxes on the sale of both new and existing homes, stimulating the housing industry and creating jobs for thousands of Californians. Similarly, the tax exemption on the purchase of clean-technology manufacturing equipment will spur investment in solar manufacturing, renewable energy, fuel cells and zero-emission vehicles in California, creating jobs and maintaining California's leadership in the field of clean technology.
"I commend the Legislature for your strong bipartisan actions on these measures. I encourage you to maintain this momentum and ask that before adjourning for Spring Recess the Legislature send me measures to relieve homeowners from tax penalties associated with the sale of their homes in a 'short sale,' and extend federal tax provisions to renewable energy projects funded with federal stimulus dollars."
The Riverside Press-Enterprise, in a March 24 editorial, blasted the tax swap as a gimmick. The newspaper opined: "A misguided tax break does not make a dubious tax-swap gimmick any more sensible as state policy. Nor is waiting for the economy to rebound a sound strategy for closing the state's large budget deficit. Legislators need to find real, long-term budget solutions, not continue the reckless practices that have buried California in fiscal turmoil. … The tax swap is legally questionable, and saves money mainly by shifting revenue that now goes to transportation projects into paying off bond debt. That step helps the state's general fund, at the expense of taking money from long-term transportation needs – hardly a policy that looks to the state's future."
Early March 25, both houses of the Legislature adjourned
until April 5 without approving the measures requested by Governor
Schwarzenegger.
Cal-TaxReports, March 29, 2010
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