Use Fuel Tax Law: Diesel Fuel Tax Law: exempt bus operation.

Senator Niello’s measure weaves policy substance with a broader scope for transit funding by extending exemptions from use-fuel and diesel-fuel taxes to counties that own and operate local transit systems, while introducing a new 1-cent-per-gallon levy on exempt fuels and transferring tax administration to the California Department of Tax and Fee Administration. The levy is described as immediate, with the exemptions and collection provisions becoming operative on the first calendar quarter that begins more than 90 days after the act’s effective date. The bill thus creates a two-stage timing framework: a contemporaneous levy and an later-on operative exemption regime.

Key provisions establish parallel—but not identical—exemption structures across the Use Fuel Tax Law and the Diesel Fuel Tax Law. Exempt bus operation would include: (1) counties or transit entities that own and operate a local transit system directly or through a wholly owned nonprofit; (2) private operators under contract with a public agency for services entered into after the act’s effective date; (3) passenger stage corporations under Public Utilities Commission jurisdiction with specified urban/suburban routes and mileage caps; (4) common carriers operating primarily within a single city; (5) school districts, community college districts, or county offices of education operating buses for pupils and related activities; and (6) private entities under contract with a school district or related entity for the activities in (5) under contracts entered after the act’s effective date. In both laws, a charter-party carrier exemption is expressly excluded. A separate 1-cent-per-gallon levy on exempt fuels, payable to the CDTFA and treated as a tax, accompanies these exemptions. The bill also shifts administration from the State Board of Equalization to the California Department of Tax and Fee Administration.

Implementation and administration hinge on timing and contract-date rules. The act contemplates immediate levy recognition, while substantive exemptions and levy collection become operative on the first calendar quarter commencing more than 90 days after the effective date. Notably, the use-fuel exemptions for private entities rely on contracts entered after the act’s effective date, whereas the diesel-fuel exemptions refer to specific historical contract dates for private operators (1979 for general private-contract exemptions and 1984 for certain school-related contracts). The administration shift to CDTFA is reflected throughout, replacing BOE references and aligning with current California practice. Enforcing the exemptions and the levy would require CDTFA-established regulations, forms, and reporting requirements.

The proposal foregrounds a broader set of beneficiaries—transit districts, cities and counties that run local systems, school-based transportation operators, and contracted private providers—while preserving a charter-party carrier exclusion. It positions CDTFA as the centralized administrator for both exemptions and the 1-cent levy, with the legislative text signaling that funds from the levy “shall be used for the improvement of their transit operations and to aid in providing better transit service to and from places of employment.” As a policy framework, the measure sits alongside existing transit-funding structures and tax administration, with implementation contingent on CDTFA regulations, contract-date determinations, and the operation calendar that marks the delayed operative phase.