OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 (860) 240-0200

http: //www. cga. ct. gov/ofa

EMERGENCY CERTIFICATION

SB-457

AN ACT CONCERNING A CAP ON THE PETROLEUM PRODUCTS GROSS EARNINGS TAX AND PENALTIES FOR ABNORMAL PRICE INCREASES IN CERTAIN PETROLEUM PRODUCTS.

OFA Fiscal Note

State Impact:

Agency Affected

Fund-Effect

FY 12 $

FY 13 $

Department of Revenue Services

GF - Revenue Loss

4. 9 million

5. 4 million

Department of Revenue Services

GF - Cost

5,000

60,593

Comptroller Misc. Accounts (Fringe Benefits)1

GF - Cost

None

35,410

Consumer Protection, Dept.

GF - Cost

None

60,593

Consumer Protection, Dept.

GF - Potential Revenue Gain

None

Up to 50,000

Department of Energy and Environmental Protection

GF - Cost

354

1,416

Note: GF=General Fund

Municipal Impact: None

Explanation

The bill caps at $3. 00 per gallon the price of gasoline and gasohol used to determine a taxpayer's liability under the petroleum products gross earnings tax (PGET), and specifies that only the amount of the PGET actually paid by a filer may be passed on to a purchaser. It makes violation of the latter provision an unfair or deceptive trade practice (CUTPA) under state law. Finally, the bill establishes provisions regarding abnormal market disruptions.

This results in: 1) a revenue loss of approximately $4. 9 million in FY 12 and $5. 4 million in FY 13 under PGET; 2) a cost to the Department of Revenue Services (DRS) of $5,000 in FY 12 and $78,298 in FY 13; 3) a cost of $78,298 to the Department of Consumer Protection (DCP) beginning in FY 13; 4) a cost of $354 in FY 12 and an annual cost of $1,416 to the Department of Energy and Environmental Protection (DEEP) beginning in FY 13; and 5) a potential revenue gain of up to $50,000 in the event of a market disruption.

Section 1 imposes a $3. 00 per gallon ceiling on the wholesale price of gasoline to which the PGET applies, and is effective upon passage.

This results in an estimated revenue loss of $4. 9 million in FY 12, $5. 4 million in FY 13, and $2. 0-$2. 8 million annually in each of FY 14-FY 16. This estimate is based on historical data for previous periods during which the wholesale price of gasoline exceeded $3. 00. The precise magnitude of the revenue loss is dependent upon the wholesale price of gasoline for the affected future period.

Due to the complexity of the tax, it is anticipated that an additional Revenue Examiner would be required within DRS to audit compliance with the tax change. Assuming maintenance of the current level of audit compliance, this results in an annualized cost of $78,298 ($60,593 for salary and $17,705 for fringes) beginning in FY 13.

Additionally, it is estimated that DRS will incur a one-time cost of approximately $5,000 to accommodate the establishment of additional tax schedules necessary to implement the change, and associated overtime.

Section 2 allows the Commissioner of Consumer Protection to investigate complaints regarding the inclusion of certain excess amounts representing the PGET in billing for the first sale of petroleum products. Violations are an unfair and deceptive trade practice, penalties for which are in lieu of existing penalties under PGET law. It is anticipated that existing penalties under PGET exceed those under CUTPA; as such, this results in a potential revenue loss.

Sections 3 and 4 would require a Forensic Account Examiner within DCP to investigate any complaints during a price disruption. Such an examination would be complex and require auditing of market and pricing data over a prolonged period. This results in an annualized cost of $78,298 ($60,593 for salary and $17,705 for fringes) beginning in FY 13. Other costs may occur to the DCP due to legal challenges by companies that are under investigation. Such costs would be dependent upon the actual number of investigations which is unknown at this time. It should be noted that the DCP currently experiences a number of public complaints pertaining to price gouging.

Sections 3 and 4 also result in a potential revenue gain to the state as they allow the Commissioner of Consumer Protection to impose a fine of not more than $10,000 on any large seller of motor gasoline found in violation of provisions of the bill. Should a market disruption occur it is anticipated that no more than five such fines would be imposed and therefore a potential revenue increase of $50,000 would be anticipated at such time.

Section 3 also requires DEEP to monitor the wholesale price of gasoline or gasohol increases. DEEP will incur costs of $1,416 a year to subscribe to the Oil Price Information Service.

The Out Years

The bill results in an annualized revenue loss, due to changes in PGET, of approximately $2. 0 million-$2. 8 million in each of FY 14-16.

The potential revenue gain from fines identified above would remain constant into the future as the fine is set by statute.

The annualized ongoing cost for staff and expenses identified above would continue into the future subject to inflation.

The preceding Fiscal Impact statement is prepared for the benefit of the members of the General Assembly, solely for the purposes of information, summarization and explanation and does not represent the intent of the General Assembly or either chamber thereof for any purpose. In general, fiscal impacts are based upon a variety of informational sources, including the analyst's professional knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.

1 The fringe benefit costs for most state employees are budgeted centrally in accounts administered by the Comptroller. The estimated non-pension fringe benefit cost associated with most personnel changes is 29. 22% of payroll in FY 13 and FY 14.