Summary
SB-1086 will amend the Revenue and Taxation Code to exclude the Motor Vehicle Fuel Tax from the calculation of sales tax.
Background
Current sales and use tax laws require retailers to pay taxes on various transactions. The amount of tax is generally based on the price of the goods. However, when it comes to gasoline, the sales tax is applied to the price of the product in addition to the amount paid in excise tax pursuant to The Motor Vehicle Fuel Tax Law, which is administered by the California Department of Tax and Fee Administration. This law imposes a tax on each gallon of motor vehicle fuel that is removed from a refinery or terminal rack, entered into this state, or sold in this state. The tax rate is specified per gallon.
By eliminating unnecessary taxes on consumers, people can save around 9 cents for every 12 gallons. If someone drives 14,000 miles in one year, they can potentially save anywhere from $3 to $7 on fuel costs annually, depending on their car. By eliminating unnecessary taxes on consumers, we are preventing the unnecessary waste of people’s hard-earned income. While this may seem to be an insignificant amount paid by the consumer, the same could be said for governments collecting this difference. Separate taxes are created to meet separate revenue needs. The idea that any level of government is taxing a tax creates both an issue of principle and accounting.
Taxing a tax is an action that raises ethical concerns and puts a burden on consumers, causing problems with fair taxation. Nowhere else in our society do we allow such a practice. When consumers pay taxes on gasoline, they expect a clear and simple system based on the product's price. However, adding an extra tax on top of an excise tax undermines trust and distorts the democratic process. Taxation should be clear and accountable. When voters or officials approve an excise tax, they expect a clear decision on that specific tax. Eliminating the taxation of a tax upholds fairness, transparency, and trust, while removing an unnecessary burden and restoring the integrity of our tax system.
Proposal
SB-1086 aims to maintain a consistent and ethical tax policy by excluding the motor vehicle fuel tax from the sales tax calculation. This change would take effect immediately and start on January 1, 2025.