Publication 216, The First 100 Years


Taxes on Motor Vehicles and Fuel

One important addition to California”s tax structure and to the functions of the Board of Equalization was the 1923 Motor Vehicle Fuel Tax. This tax, like others that were to follow, appears to have been prompted by the Board, which noted in its 1921-1922 Biennial Report that the number of motor vehicles in operation had increased nearly 900 percent between the years 1912 and 1922—from 91,194 motor vehicles in 1912 to 816,586 vehicles in 1922. The same period (1912-1922) witnessed a staggering 1,375 percent increase in California’s bonded indebtedness for highways from $400,000 to $55,000,000. Accordingly, the Board suggested that the financial burden resulting from this increase in vehicles and road traffic be borne primarily by those using the roads and highways, and recommended the imposition of a motor vehicle fuel tax, already enacted in other states.

Three acts concerning motor vehicles were passed in 1923: the Motor Vehicle Act of 1923, a Motor Vehicle Fuel Tax Act, and a Motor Vehicle Transportation License Tax Act.45 Both the Motor Vehicle Fuel Tax and the Motor Vehicle Transportation license Tax directly involved the Board of Equalization.

The Motor Vehicle Fuel Tax, applied to all fuels propelling motor vehicles (except diesel oil and butane, which became taxable at a later date), was initially two cents a gallon levied upon the distributors. The proceeds were to be divided equally between each county and the state for the express purpose of road maintenance. The Board assessed the tax, the Controller collected it, and the Attorney General prosecuted delinquent cases. It was further the Board’s responsibility to see that these distributors were licensed. In 1927 a one-cent tax, which was to be used solely for highway construction, was added to the two-cent tax. This resulted in two separate taxes on a single product. A 1933 amendment substituted a single three-cent tax with a provision that one-third of the proceeds go to the counties and two-thirds to the state.

The Board was directly involved in formulating the Motor Vehicle license Transportation Tax Act of 1923. Before the passage of this act, the state had tried to deal with commercial motor vehicles by placing registration fees on the weight and horsepower of buses and trucks. These fees soon proved to be inadequate for the growing commercial use of roads and highways. As early as 1914 the Board had warned that developments in highway transportation warranted taxation both because of wear and tear on the roads and in fairness to other transportation companies. These other transportation companies, such as railroads, which were in competition with commercial highway vehicles, were already subject to taxation. The Board advised that it would be “ . . . quite feasible to impose on such vehicles a state license tax at such rates as would be practically the equivalent of the gross receipts tax.” 46

With the encouragement of the Board and the Controller, the Legislature passed the Motor Vehicle Transportation License Tax Act in 1923, which stipulated that all common and contract carriers apply to the Board of Equalization for a license for each vehicle in operation. It further stipulated that these licenses were to be renewed at the end of each quarter with a payment of four percent of the quarter's gross receipts, minus the cost of city and county licenses or taxes upon the operative property of the company.

The adoption of Section 15, Article XIII, of the Constitution on November 8, 1926, meant the removal of common carriers from the Motor Vehicle Transportation License Tax Act to be classified as public utilities subject to the public utilities gross receipts tax. Effective January 1, 1928 the entire act, which now pertained only to contract carriers, was repealed on the grounds that it was too costly and difficult to administer.

The Board once again took the lead with an alternative recommendation that “the California vehicle act be amended to require all those who operate for hire secure special licenses at fees which will be materially greater than those now prescribed for commercial vehicles generally” 47 Subsequently, the Legislature enacted the Wagy Bill, which not only instructed contract carrier tax administrators to classify as many companies as possible as common carriers, but also imposed a graduated “weight tax” on the remaining contract carriers in lieu of a gross receipts tax. 48 However, the “weight tax” also proved to be short lived. The State Supreme Court removed so many buses and trucks from the common carrier class that very few were left. Although weight tax proved much easier to administer, it was unjust to the common carriers and they demanded an adjustment.” 49

Actually there have been three taxes in effect. The first tax (enacted in 1923 and reenacted in 1925 without substantial change) was effective from January 1, 1924 to January 1, 1928, and covered both common and contract carriers. The second tax, adopted by constitutional amendment in 1926, covered only common carriers and provided for their exemption from the first acts, which were subsequently repealed on January 1, 1928, thus relieving contract carriers from gross receipts taxation for a few years. The third tax, enacted in 1933, contained provisions essentially similar to those in the 1923 and 1925 acts for contract carriers, but exempted common carriers subject to tax the constitutional amendment. When the tax on common carriers was repealed along with other gross receipts taxes on public utilities effective July 1, 1935, common carriers became subject to the three percent tax paid by other for-hire motor carriers under the 1933 act.49A

45 The 1923 Motor Vehicle Act was actually a successor to two other motor vehicle laws—one enacted in 1913 and one in 1915.

46 Report of the State Board of Equalization 1913-1914 p. 23.

47 Report of the State Board of Equalization 1927-1928 p. 18.

48 Proposition No.8 at the election of 1928: Cal. Stats. 1929, Chap. 780.

49 Assembly Interim Committee Reports 1955-1957. A Resumé of California’s Tax Structure, 1850-1955. p. 26.

49A Zettel, Richard M., An Analysis of Taxation for Highway Purposes in California, 1895-1946, p. 41.