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Business Taxes Law Guide—Revision 2024
Use Fuel Tax Law
Revenue and Taxation Code
Division 2. Other Taxes
Part 3. Use Fuel Tax
Chapter 2. Imposition of Tax.
Section 8655
8655. Exemptions; transit district, passenger stage corporation, and common carrier. (a) This section shall be known and may be cited as the Mills-Hayes Act.
(b) No tax shall be imposed upon fuel used by:
(1) Any transit district, transit authority, or city owning and operating a local transit system itself or through a wholly owned nonprofit corporation.
(2) Any private entity providing transportation services for the transportation of people under contract or agreement, except general franchise agreements, with a public agency authorized to provide public transportation services, only for fuels consumed while providing services under such contracts or agreements entered into subsequent to the effective date of this act.
(3) Any passenger stage corporation subject to the jurisdiction of the Public Utilities Commission when the motor vehicles of such passenger stage corporation are exclusively operated in urban or suburban areas or between cities in close proximity for the transportation of persons for hire, compensation, or profit; provided, however, that the exemption is not extended to any line or lines operated by such passenger stage corporation which shall exceed 50 miles of one-way route mileage.
(4) Any common carrier of passengers operating exclusively on any line or lines within the limits of a single city between fixed termini or over a regular route, 98 percent of whose operations, as measured by total route mileage operated, are exclusively within the limits of a single city, and who by reason thereof is not a passenger stage corporation subject to the jurisdiction of the Public Utilities Commission.
(5) Any school district, community college district, or county superintendent of schools owning, leasing, or operating buses for the purpose of transporting pupils to and from school and for other school or college activities involving pupils, including, but not limited to, field trips and athletic contests.
(6) Any private entity providing transportation services for the purposes specified in paragraph (5) under contract or agreement with a school district, community college district, or county superintendent of schools, only for fuels consumed while providing services under those contacts or agreements entered into subsequent to the effective date of the act adding this paragraph.
(c) Notwithstanding the exemption provided for by subdivision (b), any system, corporation, or carrier using fuel exempt under the provisions of subdivision (b) shall, for the privilege of operating vehicles on state highways and freeways, make a payment equal to one cent ($0.01) for each gallon of such exempt fuel used. The payments required by this subdivision shall be paid to the State Board of Equalization in the manner prescribed by the board, and such payments shall be treated as a tax for all purposes of this part.
(d) The exemption provided for in subdivision (b) and the payments provided for in subdivision (c) shall not be applicable to fuel used by a charter-party carrier of passengers. The term "charter-party carrier of passengers" has the same meaning as that specified in Section 5360 of the Public Utilities Code and shall further include those transportation services described in subdivisions (a) and (e) of Section 5353 of the Public Utilities Code, if such transportation service is rendered as contract carriage and not as common carriage of passengers.
(e) There are in the State of California many local bus transit operators in need of financial assistance from sources other than the local property tax. These operators are performing essential public transit service as a vital counterpart of the streets and highways. It is the purpose of this section to provide relief from the payment of use fuel tax for local transit operators and it is the intent of the Legislature that the funds accruing to such operators shall be used for the improvement of their transit operations and to aid in providing better transit service to and from places of employment.
There are also in the State of California many private entities providing public transportation services for the transportation of people in vehicles other than buses under contract or agreement with local government, transit districts or local bus transit operators. It is the purpose of this section to provide relief from the payment of use fuel taxes for diesel fuel for those private entities only for fuel consumed while providing these services.
History—Added by Stats. 1968, p. 690, in effect June 19, 1968, operative July 1, 1968. Stats. 1971, p. 714, in effect March 4, 1972, substitutes "contract carriage and not as common carriage of passengers" for "charter-party carrier of passengers" in last sentence of (d). Stats. 1973, Ch. 458, effective September 11, 1973, deleted the language ", as defined in section 9651.5 of this code." from part (b)(2) and inserted in its place the language commencing with "or between cities … ." Stats. 1978, Ch. 1140, operative January 1, 1979, in subdivision (b) renumbered (2) and (3) and added new (2). Stats. 1982, Ch. 1500, in effect September 28, 1982, added "for the transportation of people" before "under" in subsection (2) of subdivision (b) and added the second paragraph in subdivision (e). Stats. 1984, Ch. 1663, effective September 30, 1984, operative October 1, 1984, added (b)(5) and (b)(6) and all text therein.
Note.—Stats. 1971, p. 715, provides that the amendment to Section 8655 of the Revenue and Taxation Code, effective March 4, 1972, does not constitute a change in, but is declaratory of, existing law.
Note.—Sec. 3 of Stats. 1984, Ch. 1663, effective September 30, 1984, operative October 1, 1984, provided the Legislature finds and declares that there presently is uncertainty in the application of diesel fuel taxes with respect to school districts and community college districts which this act is intended to clarify.
For the public purpose of assuring equity in the payment of diesel fuel taxes among school districts and community college districts, the Legislature, in enacting this act, intends to clarify existing law and to affect all applicable pending proceedings which come within the provisions of paragraph (5) of subdivision (b) of Section 8655 of the Revenue and Taxation Code, as follows:
(a) Notwithstanding Section 8782 of the Revenue and Taxation Code, for reporting periods prior to July 1, 1984, the notice of determination to a school district, community college district, or county superintendent of schools shall be given within three years after the last day of the month following the period for which the return was due. Any unpaid liability determined for periods beyond a three-year statute of limitations is hereby canceled.
(b) No interest pursuant to Sections 8803 or 8876, or penalties imposed pursuant to Section 8801, 8804, or 8876, of the Revenue and Taxation Code shall apply to unpaid tax liabilities for any periods prior to July 1, 1984.
(c) With respect to unpaid tax liabilities determined for the period between July 1, 1981, and July 1, 1984, pursuant to Section 8801 or 8876, the taxes may, at the option of the taxpayer, be paid over a period of up to 10 years. No penalties shall be assessed so long as the installment payments are made timely, but interest on the unpaid balance shall be paid as prescribed by Section 8876 of the Revenue and Taxation Code.
(d) If the State Board of Equalization finds that the failure to make a timely payment pursuant to subdivision (c) is due to reasonable cause and circumstances beyond the taxpayer's control, and occurred, notwithstanding the exercise of ordinary care and the absence of willful neglect, the taxpayer may be relieved of the penalty.
Note.—Stats. 1986, Ch. 216, effective June 30, 1986 amended Section 3 of Stats. 1984. Ch. 1663 to reference Section 8876 for interest, and Sections 8801, 8804 or 8876 related to penalties. It also replaced "tax liabilities" for "determinations issued" in (b) and "unpaid tax liabilities determined" for "determinations issued" in (c).