Thursday, March 1, 2012

California Senator Pitches Permanent Bunker Fuel Tax Exemption

California State Sen. Alan Lowenthal (D-Long Beach) has introduced legislation to permanently eliminate a partial sales tax on the purchase of marine fuel in California.

Lowenthal’s bill, SB 1243, which was introduced Feb. 24, would make a current tax exemption permanent by eliminating the current expiration date of Jan. 1, 2014. Under the exemption, California doesn’t tax fuel that’s purchased within the state but consumed outside of its waters.

“No other maritime port in the US currently charges sales tax on marine fuel,” Lowenthal said in a statement announcing the bill. “This is about protecting California jobs and keeping California ports competitive.”

Bunker fuel, like most products sold in California, is subject to the state’s sales tax. But for competitive reasons, California currently offers a partial sales tax exemption on maritime fuel sales.

The current exemption, which requires renewals every five years, has expired twice before, in 1992 and 2002. According to the state Legislative Analyst, the previous temporary expirations caused marine fuel sales statewide to drop almost 50 percent.

“We’ve seen on two occasions that removing this sales tax exemption will cost our region,” Lowenthal said.

Part of the senator’s argument for eliminating the tax altogether is that it impacts the competitiveness of California ports. Fuel accounts for an estimated 30 percent to 45 percent of the cost of operating a vessel in international commerce.

The addition of the full sales tax on marine fuel can virtually eliminate a vessel’s operating profits, according to the senator, and de-incentivize the purchase of marine fuel in California.

Lowenthal also says eliminating the tax altogether would “protect hundreds of high-paying blue collar jobs” on waterfronts throughout the state.

As the legislation’s currently written, it would go into effect immediately if passed. The legislation could be a tough sell however, since it would require cash-strapped California to willingly give up potentially millions of dollars in sales tax revenue.

In January, Gov. Jerry Brown proposed a 2012-2013 state budget that cuts spending and raises taxes to help close a $9.2 billion budget gap.