The remaining state tax expenditure programs (TEPs), detailed in the following section, involve state excise taxes (alcoholic beverage taxes, cigarette and tobacco taxes, and various fuel taxes) and the insurance tax. The responsibility for administration of these tax programs lies with the Board of Equalization (BOE) and the Department of Insurance, respectively. Revenues collected from these tax sources may be distributed, depending on the tax, to the state General Fund, designated special funds, or both. (For example, cigarette and tobacco taxes provide revenues to the General Fund and three special funds.) Thus, the TEPs that apply to these revenue sources affect revenues that fund a variety of programs. The following provides a brief description of other state taxes.
Current state law levies excise taxes on the sale of alcoholic beverages by manufacturers, distillers, wine growers, certain wholesalers, purifiers, and importers. The point of taxation varies depending upon the alcoholic beverage sold. For example, distilled spirits are taxed when the product is sold by the wholesaler to the retailer; however, taxes on imported beer and wine may occur when these products are first brought into the state. Depending upon market structure, these taxes may be fully or partially passed through to the final consumer in the form of higher prices (the same is true for the other excise taxes discussed below). The state's sales and use tax is applied "on top" of the excise tax.
Alcoholic beverages are taxed by the gallon and state excise tax rates vary by beverage type. The current tax rates are: 20 cents per gallon for beer, hard cider, and most wines; 30 cents per gallon for champagne or sparkling wine; $3.30 per gallon for distilled spirits that are 100 proof or less; and $6.60 per gallon for distilled spirits over 100 proof. All revenues collected from alcoholic beverage taxes go into the state's General Fund.
In addition to state excise taxes, the federal government levies its own excise taxes on alcoholic beverages.
Current state law levies a tax on distributors for the sale of cigarettes and other tobacco products. As with alcoholic beverage taxes, the state sales and use tax is applied "on top" of the excise tax.
The current state excise tax rate on cigarettes is 87 cents per pack. Of this amount:
Tax rates on other tobacco products such as loose tobacco, cigars, and snuff are adjusted by the BOE each year so that the tax levied is in the same proportion to the wholesale price of these products as the 87-cents-per pack tax levied on cigarette products is of their wholesale price. An additional tax, equivalent to 50 cents per pack, will be levied on these other tobacco products beginning July 1, 1999. Revenues collected from the tax on such other tobacco products are distributed to the Cigarette and Tobacco Products Surtax Fund and the California Children and Families First Trust Fund.
In addition to state excise taxes, the federal government also levies an excise tax on cigarette and tobacco products.
Current law imposes three major categories of fuel taxes: the Motor Vehicle Fuel License Tax (referenced herein as the "Motor Vehicle Fuel Tax"), the Diesel Fuel Tax, and the Use Fuel Tax. Revenues collected from all fuel taxes are deposited into the State Transportation Fund. These revenues provide the state and its localities with a major source of funding for maintaining, replacing, and constructing highways, streets, and other transportation facilities. The following provides a brief description of each type of state tax levied.
Motor Vehicle Fuel Tax. Current state law imposes a tax on distributors for the sale of motor vehicle fuel including gasoline, aviation gasoline, and certain blended gasolines for vehicular use on public streets and highways. The tax does not apply to fuel used for racing motor vehicles at a race track, diesel fuel, liquified petroleum gas, kerosene, methanol, ethanol, or natural gas. The state sales and use tax is applied "on top" of the excise tax.
The current state excise tax is 18 cents per gallon of gasoline, excluding aircraft jet fuel (which is taxed at 2 cents per gallon). As specified in the reviews that follow, certain air common carriers, aircraft manufacturers and repairers, and the U.S. Armed Forces are exempt from the tax on jet fuel.
Diesel Fuel Tax. Current state law imposes a tax on distributors at the wholesale level for the sale of diesel fuel and blended diesel fuel sold for use in propelling vehicles on public streets and highways. Unlike most other state excise taxes, this excise tax is not included as part of the base for calculating the sales and use tax.
The current state excise tax is 18 cents per gallon. Prior to July 1, 1995, this tax was collected under the use fuel tax, at which time the diesel fuel tax was established as a separate tax under the California Revenue and Taxation Code. Under the diesel fuel tax, the imposition of the tax was shifted to the first point of distribution (the "rack"), partly in order to ensure greater tax compliance.
Use Fuel Tax. Current state law levies a tax on the sale of alternative fuels such as liquified petroleum gas (LPG), liquified natural gas (LNG), compressed natural gas (CNG), alcohol fuels (ethanol or methanol), and kerosene. These alternative fuels remain untaxed until they are dispensed into a motor vehicle that is operated on California highways, or that is suitable for highway operation.
The current state excise tax rates are 18 cents per gallon for kerosene, 6 cents per gallon for LNG, 7 cents per cubic foot for CNG, 9 cents per gallon for alcohol fuels, and 6 cents per gallon for LPG. As with the diesel fuel tax, this excise tax is not included as part of the base for calculating the sales and use tax. An alternative flat tax based on the weight of the vehicle is available for LPG, LNG, and CNG consumers. This rate ranges from $36 for passenger cars to $168 for larger vehicles.
Other Fuel Taxes. A special fuel tax rate of 1 cent per gallon is levied on fuel used by local transit systems, school and community college districts, and certain common carriers. This special tax is in lieu of the other fuel taxes described above.
In addition to the state fuel taxes, the federal government levies an excise tax on fuel products sold.
In general, insurers conducting business in California are subject to a tax on their gross premiums written in the previous year, less "return" premiums and dividends. ("Return" premiums are refunds paid to policyholders that cancel their policy before its expiration date.) Certain types of insurers and plans, such as title insurers and ocean marine insurers, are taxed slightly differently. Insurers are subject to the gross premiums tax in lieu of all other taxes except real property taxes and business license fees. The basic gross premiums tax rate is 2.35 percent.
In addition, out-of-state insurers operating in California may be subject to an additional "retaliatory tax." This occurs if the effective tax rate imposed by their home state on California insurance companies operating in that state is higher than the tax rate imposed in California on these out-of-state insurers.
There is no comparable gross premiums tax at the federal level. Instead, insurance companies are typically subject to federal corporate income taxation.
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