ASSEMBLY APPROPRIATIONS COMMITTEE

STATEMENT TO

ASSEMBLY, No. 128

with committee amendments

STATE OF NEW JERSEY

DATED:  OCTOBER 22, 2018

      The Assembly Appropriations Committee reports favorably Assembly Bill No. 128, with committee amendments.

      Assembly Bill No. 128 provides an exemption from the petroleum products gross receipts tax (PPGRT) and the motor fuel tax for fuel used for the operation of certain school buses clarifies the tax treatment of certain dyed fuel under the PPGRT, and clarifies the determination of taxable estates of certain resident decedents for purposes of the estate tax.   The bill also excludes the exemptions and these clarifying changes from the review of legislative actions by the three-member review council established by P.L.2016, c.57, to prevent a cessation in the imposition of one of the components of the petroleum products gross receipts tax.

      Fuel Used for Certain School Buses.  The bill provides an exemption from the petroleum products gross receipts tax and the motor fuel tax for fuel used for the operation of certain school buses.  Under the bill, the exemption applies to fuel used for school buses operated for the transportation of pupils to or from school or a school-sponsored activity or event by a religious or charitable organization or corporation or by a person under contract with a public or governmental agency or a religious or other charitable organization or corporation.

      To receive the benefit of the exemption, purchasers of fuel used to operate a school bus for the transportation of pupils to or from school or a school-sponsored activity or event must pay tax at the point of purchase and seek a refund of the taxes paid by the filing of a claim with the Director of the Division of Taxation in the Department of the Treasury.  As is required under current law for certain other exempt uses of fuel, the claim for refund must be filed with the director by the purchaser providing proof that the tax has been paid, and the director must confirm that a refunds has not been previously issued.

      The bill defines “school buses” by reference to the definition of “school bus” under R.S.39:1-1.  Under that section of law, a “school bus” is any motor vehicle operated by, or under contract with, a public or governmental agency, or religious or other charitable organization or corporation, or privately operated for the transportation of children to or from school for secular or religious education, which complies with the regulations of the New Jersey Motor Vehicle Commission affecting school buses, and includes “School Vehicle Type I” and “School Vehicle Type II.”  

      Under current law, consumers of fuel that are eligible for an exemption from the petroleum products gross receipts tax and the motor fuel tax must pay the tax at the point of purchase and seek a refund of the taxes paid by the filing of a claim with the Director of the Division of Taxation in the Department of the Treasury.  The law provides that the claim for refund must be filed by the consumer providing proof that the tax has been paid and a refund has not been previously issued.

Treatment of Dyed Fuel under PPGRT.  The bill clarifies the tax treatment of certain dyed fuel under the petroleum products gross receipts tax.  Under the bill, dyed fuel is excluded from the definition of “gross receipts” so that receipts from sales of dyed fuel (unless used in a motor vehicle for operation on the public highways) are explicitly exempt from tax and recognized in a similar form and manner as dyed fuel is recognized for purposes of the motor fuel tax.

      Under the motor fuel tax, dyed fuel is dyed diesel fuel or dyed kerosene that is required to be dyed pursuant to United States Environmental Protection Agency rules or is dyed pursuant Internal Revenue Service rules or any other requirements set by those federal agencies.  Fuel is dyed to easily identify fuel that has not been subjected to federal highway tax.  The motor fuel tax recognizes that dyed fuel can generally only be used for an exempt public purpose, and prohibits dyed fuel sold for an exempt purpose from being used in a taxable manner through the imposition of certain fines and penalties.

Determination of Taxable Estates of Resident Decedents.  The bill clarifies the determination of taxable estates of certain resident decedents for purposes of the estate tax.  Under the bill, the taxable estate of each resident decedent dying on or after January 1, 2017, but before January 1, 2018, is to be determined based upon the taxable estate of the decedent for federal estate tax purposes but without the deduction of any estate, inheritance, legacy, or succession taxes actually paid to any state or territory of the United States or the District of Columbia as is otherwise allowed pursuant to section 2058 of the federal Internal Revenue Code in effect on January 1, 2017.

      The disallowance of the deduction will limit the potential of a tax benefit that estates of resident decedents dying on or after January 1, 2017, but before January 1, 2018, might claim for any estate, inheritance, legacy, or succession taxes actually paid to any state or (territory of the United States or District of Columbia).  Currently, the law directs the estate tax to be determined based upon the federal taxable estate (which is the decedent’s gross estate minus certain deductions, including the deduction for estate, inheritance, legacy, or succession taxes actually paid to any state or territory of the United States or the District of Columbia), and provides that the resident decedent’s tax liability is to further be reduced by a credit for a proportion of those same taxes actually paid to any state in respect to property in another state owned by the decedent or subject to those taxes as part of or in connection with the estate.

Exclusion from Review by the Review Council.  The bill excludes the exemptions and the clarifying changes from the review of the three member review council established by P.L.2016, c.57 to prevent a cessation in the imposition of one of the components of the PPGRT.  Under the bill, the provisions of current law that direct the three-member review council to review legislative actions and issue certifications to the Director of the Division of Taxation and the scheduled implementation of P.L.2016, c.57 might otherwise be impeded will not apply to those sections of the bill that exempt fuel used for certain school buses and clarify treatment of dyed fuel and the determination of taxable estates of resident decedents. 

       Under current law, the three member review council (i.e. the State Treasurer, Legislative Budget and Finance Officer, and a third public member) is directed to monitor the actions of the Legislature on an ongoing basis for interference with the implementation of P.L.2016, c.57.  If the implementation is impeded, the council is to certify this interference to the Director of the Division of Taxation and the director is to effectuate the cessation of the imposition of one of the components of the PPGRT.

Effective Date.  The bill is scheduled to take effect immediately upon enactment, but provides for the exemption and clarification to the treatment of dyed fuel to apply to the fuel used on or after the first day of the first month next following enactment.  The bill provides for the clarification of the determination of taxable estates to apply retroactively to estates of resident decedents dying on or after January 1, 2017.

      This bill was pre-filed for introduction in the 2018-2019 session pending technical review.  As reported, the bill includes the changes required by technical review, which has been performed.

COMMITTEE AMENDMENTS:

      The committee amendments clarify the tax treatment of certain dyed fuel under the petroleum products gross receipts tax, and clarify the determination of taxable estates of certain resident decedents for purposes of the estate tax.

      The amendments exclude the exemptions for fuel used for certain school buses and the clarifying changes from the review of Legislative actions by the three-member review council established by P.L.2016, c.57 to prevent a cessation in the imposition of one of the components of the petroleum products gross receipts tax.

      The amendments modify the effective date of the bill to specify that the clarification to the treatment dyed fuel is to apply prospectively, and to specify that the clarification to the determination of taxable estates is to apply retroactively to estates of resident decedents dying on or after January 1, 2017.

FISCAL IMPACT:

      The Office of Legislative Services (OLS) finds that the petroleum products gross receipts tax (PPGRT) and motor fuels tax exemptions provided pursuant to this legislation for fuel used for the operation of certain school buses will result in a recurring annual loss of State fuel tax revenues; however, savings realized by the private bus operators from the purchase of the newly tax-exempt fuel may be passed along to local school districts.  The OLS does not have access to data regarding the number of active school bus contractors in the State, the number of school buses actively operated by these school bus contractors, and the mileage or fuel usage data for each contractor.  Thus, while the OLS notes that providing the fuel tax exemptions to school bus contractors would reduce the pool of taxpayers who pay the fuel taxes, the OLS is unable to estimate the amount of fuel tax revenues that will be forgone to the State as a result of the exemptions.

      No fiscal impact is expected to result from the legislation’s changes to the treatment of dyed fuel under the PPGRT.  Dyed fuels are primarily used in machines and equipment that do not operate on public roads and are not subject to the PPGRT.

      The OLS notes that the fiscal impact of disallowing an estate from claiming the deduction for estate, inheritance, legacy, or succession taxes paid to other jurisdictions for purposes of determining a resident decedent’s taxable estate cannot be determined, due to insufficient information regarding the estates of those resident decedents dying on or after January 1, 2017.