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California gets sensible over bunker fuel

Posted to Martin Rushmere (by on September 27, 2012

No, not over low sulfur, but sales tax

California does make sensible maritime decisions occasionally, although its record is still pretty abysmal in helping its ports and shipping in general. But a recent state law shows that there are still some clear political heads.

Specifically it’s Senate Bill 1243, which continues a partial sales tax exemption for bunker fuel bought at California ports and which goes on through to January 2024 (the allowance would have expired, “sunseted” in official terms, in January 2014).

What this means is that the sales tax on fuel bought will be deducted after a vessel reaches its first non-California port.  

What this means is, and here I quote the official state explanation, is: “The calculation of the taxable portion is based on the standard inventory method of “first-in, first-out” (commonly known as FIFO).

“For example, if 2,000 tons of bunker fuel were required for a ship to reach its first destination outside of California, and it had 1,000 tons of fuel on board before it reached California, the first 1,000 tons of fuel purchased in California would be subject to the [sales tax], regardless of the total amount of fuel it bought in the state. Without the specific exemption, the entire amount of fuel purchased in California would be subject to the [sales tax].”

The crunch in the wording is the “regardless of the total amount of fuel it bought in the state.” This means that masters have to do some careful balancing of fuel requirements. Bunker prices have to be known exactly at the various ports, while route schedules need to be worked out with regard to fuel requirements. Remember, the tax exemption applies whether a ship calls at Portland, Oregon or Yokohama.

It is feasible that a schedule could be set up to include Portland – after which the exemption applies – and then Yokohama, depending on technical engine factors and bunker prices.

Sales tax is a base rate of 7.5 percent plus 1-1.5 percent that counties levy for themselves. The whole package is called a Sales Usage Tax.

How do the authorities know how much fuel a vessel has when they arrive and how much they will use? “It’s really an honor system”, says a shipping expert. “Trust has been built up. Obviously a general burn figure is known, based on the tonnage, type of ship and its age. But this can obviously vary and it’s up to the carriers to be upfront about it.”  

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