SENATE BILL REPORT

SB 6440

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

Background: Transportation Taxes and Fees. Under current law there is a motor vehicle fuel tax of $0.375 per gallon imposed on motor vehicle fuel and special fuel. In order to encourage the use of nonpolluting fuels, there is an annual license fee in lieu of the motor vehicle fuel tax on vehicles powered by natural gas and propane. The annual license fee in lieu of motor vehicle fuel tax is based on the weight of the vehicle and the current motor fuel tax rate, which is currently between $140.00 and $781.25 plus a $5 handling fee.

Public Utility Tax (PUT). Income from utility operations is taxed under the PUT and is in lieu of the business and occupation (B&O) tax. Different rates apply depending upon the specific utility activity. The current rate, including permanent surtaxes, for the distribution of natural gas is 3.852 percent.

Summary of Bill: Transportation Taxes and Fees. Liquefied natural gas and compressed natural gas are added to the motor vehicle fuels subject to the motor vehicle fuel tax. The annual license fee in lieu of motor vehicle fuel tax is clarified to include vehicles that are powered by liquefied natural gas and compressed natural gas. Additionally, vehicles that are registered as part of the international registration plan would be subject to a prorated share of the annual license fee in lieu of motor vehicle fuel tax.

Vehicles powered by liquefied natural gas are added to the list of vehicles that are exempt from motor vehicle emission control inspections.

PUT and B&O Taxes. Liquefied natural gas and compressed natural gas that are sold or used as transportation fuel are exempt from state and local PUTs and the state use tax. Liquefied natural gas and compressed natural gas that are exempt from PUT are subject to the state B&O tax at the manufacturing rate of 0.484 percent of the gross receipts of the business activity. Local B&O taxes on liquefied natural gas and compressed natural gas that are sold or used as transportation fuel are limited to the rate that is in place for the sale of tangible personal property, or 0.2 percent if the jurisdiction does not impose a B&O tax on the sale of tangible personal property. Transportation fuels include fuels used in motor vehicles, vessels, locomotives, and railroad cars.

The provisions in this bill are permanent and not subject to the ten-year expiration date or a tax preference performance statement.

Staff Summary of Public Testimony: PRO: Large trucking fleets are looking at converting to LNG and this helps the environment by encouraging the use of cleaner fuels. It also allows the state transportation system to capture the use from all the vehicles using the system. There are a lot of economic development opportunities since liquefied and compressed natural gas as a transportation fuel is an expanding market. The investment that Puget Sound Energy plans to make will create at least 500 direct and indirect jobs. Currently natural gas that is supplied by a utility company is taxed at the utility rates and this bill would make it so that it is treated the same way for everyone. The decal system that is used for vehicles that are powered by natural gas does not account for the use of the system so there needs to be a pathway to imposing the actual fuel tax.