Assembly Considers Reinstating Tax Break on Marine Bunker Fuels : Shipping: With refueling at local ports down almost 50%, waterfront businesses fear going under if the levy remains in effect.

People who earn their living at the ports of Long Beach and Los Angeles are hoping that despite the state budget crunch, the Legislature will realize that sometimes government can bring in more money by repealing taxes, not imposing them.

At issue is a bill before the Assembly that would reinstate a longstanding tax break for commercial ship owners who refuel in California ports. Supporters say that unless the tax break on “marine bunker fuels” is reinstated, the once-booming ship refueling business in the ports, which already has declined by almost 50% during the past year, will continue to sink like a stone. And hundreds of people could be out of work.

“Levying this tax has caused a large part of the world fleet to bypass California ports,” said Assemblyman Dave Elder (D-San Pedro), sponsor of the bill to abolish the full sales tax on bunker fuels. “The ripple effect on our waterfront community is dramatic. We’re going to be talking about up to 1,200 people in the unemployment line” if the tax remains in force.

“How important is it?” Doug Larsen, president of Wilmington Transportation, a port tug and barge company, said of Elder’s bill. “It’s extremely important. . . . Since that tax came in we’ve seen a dramatic drop off in bunker activity.”

Union representatives also say that the fate of the bill will profoundly affect workers throughout the port.

“It (the sales tax) has been devastating,” said Bob Forrester, regional director of the Inland Boatmen’s Union, which represents barge, tugboat, ferry and water taxi workers.

Until last year, “marine bunker fuels,” which are derived from the residue left over after the production of gasoline, kerosene, diesel and other petroleum products, were given a partial break from state and local sales taxes. Generally, only that portion of the bunker fuel that was required for the ship to get to the next out-of-state port was taxed, which resulted in only about 12% of the bunker fuel sold in California being subject to sales taxes.

But in July, 1991, state officials estimated that if all bunker fuel sales were taxed, the state would bring in about $100 million in annual revenue--a figure later reduced to about $42 million. The bunker fuel partial tax exemption was abolished, making California the only state to fully tax bunker fuels used in interstate or international transportation.

Since then, ship owners have paid an 8.25% sales tax on every barrel of bunker fuel they buy in California--a substantial sum for ships that buy thousands of barrels of bunker fuel, at a cost of about $15 per barrel.

The result has been that ship owners are buying their bunker fuel outside of California, where sales taxes are not imposed. Bunker fuel sales in the ports of Los Angeles and Long Beach have declined from an average 3.8 million barrels per month to about 2 million barrels per month. The number of ship calls for refueling have declined by more than half. Those ships that are buying bunker fuel in Los Angeles are buying less--in some cases, just enough to get them to the next non-sales-tax port.

According to supporters of the proposal to abolish the full sales tax on bunker fuel, every time a ship stays away from Los Angeles because of the fuel tax, maritime-related businesses, from water taxis to hotels to ship chandlers, are adversely affected.

One study estimated that if bunker sales and ship calls continue to decline, with resulting decreases in employment and maritime-related business, the state will wind up losing more money because of the full sales tax than the tax itself brings in. The study estimated that up to 1,100 people could lose their jobs in Los Angeles and Long Beach if the bunker fuel business collapses.

Elder said the bill to abolish the bunker fuels tax and reinstate the partial sales tax exemption could be voted on by the Assembly soon. Because it is a revenue bill, a two-thirds vote will be necessary to pass it.