Learn more about the "Fuel Tax Swap"
I hope to end the confusion created by the 30-second sound bites and political posturing on the alleged increase in gasoline prices as a result of the Board of Equalization (BOE) adjusting the excise tax on motor vehicle fuel, which is paid by the fuel supplier. This is not a tax increase, and may not cause an increase in the cost of gasoline, considering the sales tax reduction and corresponding adjustment of the excise tax rate.
In 2010, the BOE was mandated, by legislation signed into law by Governor Schwarzenegger, to equalize the sales taxes and excise tax on motor vehicle fuel to avoid a net increase in taxes. This was referred to the "Fuel Tax Swap."
Angered by the Legislature's enactment of several tax increases in early 2010, on November 2, 2010 California voters passed Proposition 26, which requires a 2/3 majority vote of both houses in the Legislature to pass taxes, tax-like fees and charges. Many voters thought Proposition 26 over-turned the "Fuel Tax Swap," and the issue was resolved. However, the argument was made that a subsequent adjustment to the excise tax rate may require a 2/3 majority vote of both houses of the Legislature.
To clarify this concern, on March 16, 2011, the California State Senate, and Assembly, passed Assembly Bill 105 (AB 105) which re-enacted the "Fuel Tax Swap," with a two-thirds vote of each house "pursuant to the requirements of Proposition 26, as approved by the voters at the November 2, 2010, statewide General Election." Governor Brown signed it into law. Specifically, in passing AB 105 the Legislature stated: "It is the intent of the Legislature to reenact the "Fuel Tax Swap," …. with a two-thirds vote of each house of the Legislature pursuant to the requirements of Proposition 26, as approved by the voters at the November 2, 2010, statewide General Election."
AB 105 re-enacted several statutes pertaining to motor vehicle fuel, including section 7360 of the Motor Vehicle Fuel Tax Law, which mandates an annual excise tax rate adjustment on motor vehicle fuel effective July 1, 2011.
AB 105 also re-enacted several statutes which provide for a diesel fuel excise tax rate decrease, a sales and use tax rate increase on sales of diesel fuel, and a sales tax prepayment rate adjustment on diesel fuel effective July 1, 2011.
However, the various legislative changes enacted into law did not authorize the BOE to raise or lower the net taxes on gasoline, nor did it give the BOE the authority to adjust for the various factors impacting the price of gasoline.
With a family of six, five of whom drive, if I had the authority to lower the net taxes on gasoline, I would. With the rise in consumption and price of gas, according to Tom Kloza, Chief Oil Analyst for the Oil Price Information Service (OPIS), California has enjoyed a windfall, and the Legislature should consider lowering the taxes to reflect this windfall.
It is important to note that, although the BOE adjusted the excise tax on the fuel supplier by 3.5 cents per gallon, the legislation also created a five percent sales tax exemption for sales of motor vehicle fuel. The excise rate adjustment in conjunction with the sales tax exemption, results in offsetting the net impact on the consumer and this adjustment does not necessarily guarantee that gas prices will go up. Also, the revenue received from the excise tax can only be used to repair our roads and highways.
Interestingly, the Los Angeles Times recently reported that gas prices may be going down because wholesale gasoline prices and oil prices have taken a nose dive, according the Automobile Club of Southern California (AAA): California gas prices peak; pump pain changes U.S. driving habits
I thought about protesting the legislative mandate, and not adjusting the excise tax rate on motor vehicle fuel. However, according to our Chief Legal Counsel, by doing so I would be violating the law and also arguably exposing taxpayers to even higher taxes in the future; and that would be irresponsible. As Chair of the Board, I did not have the comfort of casting a symbolic "No" vote as did my Republican colleagues. Nonetheless, I share their frustration and yours.
Hopefully this clears up the confusion that the BOE somehow had the authority to raise taxes. Again, thank you for sharing your thoughts, and if you would like to review the laws that govern our actions, the facts surrounding the adjustment please visit: Fuel Tax Swap - Frequently Asked Questions or Tax Rate on Gasoline.
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