MIC:

State of California
Board of Equalization
Legal Department-MIC: 82
To :
Edward W. King, Chief
Fuel Taxes Division, MIC: 33
Date: August 21,2006
Telephone: (916) 323-7713
CalNet: 8-473-7'713
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Subject:
,
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hc./Exen~ptBus Opzrator A~plication
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the abcjve-reI't:rcnceci :axpayer md the appiication of the Diesel Fuel Tax Law be reissued to
reaffirm the analysis therein and to analyze, additionally, the application of the Use Fuel Tax
Law. My prior memorandum, dated July 12,2005, specifically addressed the question of
whether - _
(Taxpayer) qualifies as an "exempt bus operator" with regard
to any of the transportation services it provides pursuant to the contracts the Taxpayer has
submitted in support of its application for exemption.
,
I
The legal opinions expressed in the July 12, 2005, memorandum are still applicable:
Taxpayer qualifies as an Exempt Bus Operator for two of its five operations under the Diesel
Fuel Tax Law, as discussed below. In addition, Taxpayer also qualifies for exemption for two of
its five operations under the Use Fuel Tax Law, also discussed below.
Diesel Fuel Tax Law
Section 60039 of the Revenue and Taxation code1 defines the types of transportation
services that do and do not qualify as an "exempt bus operation." Section 60039 provides, as is
relevant to the transportation services provided by the Taxpayer:
(a) "Exempt bus operation" consists of the following:
[fl - - . [TR
(2) Any private entity providing transportation services for the
transportation of people under contract or aweement, except
general franchise agreements, with a public agency authorized to
provide public transportation services, only for diesel he1
consumed while providing services under those contracts or
agreements . . . ."
I
All future statutcrry refzrezces t
;.!
hc iij ihe Kevenue and Taxation Code unless stated otherwise.
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Edwad V?. .King, Chief
August 2 1,2006
Page 2 of 8
(4) Any common canier of passengers operating exclusively on any
Iine or lines within the limits of a single city between fixed tennini
or over a regular route, 98 percent of whose operiitions, as
measured by total route mileage operated, zre exc!usive!v witbin
the limits of a sinde citv, and vgho by reason thereofis not a
passenger stage corporation subject to the jurisdiction of the Public
Utilities Commission.
(5) Any school district . . . owning, leasing, or operating buses for the
purpose of transporting p u ~ i l sto and from school and for other
schaol . . . activities involving pupils, including, but not limited lo,
field trips and athletic contests.
46) Any private entity providing transportation senrices far the
purposes specified in paragraph ( 5 ) under contract or ageemegt
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-with school dist_~ct
. . . oFJv fc'c\rdiese! e L l ~~325:27&
provid:Lii_gse~iices-urier those sor,tr~ctsor agreements . . . .
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(b) "Exempt bus operation" as defined in subdivision (a): shall not be
applicable to a charter-party carrier of passeneers. The term "charterparty carrier of passengers" has the same meaning as that specified in
Section 5360 of the P ~ b l i cUtilities Code and shall M e r include
those transportation services described in subdivisions (a) and (e) of
Section 5353 of the Public Utilities Code, if that transportation service
is rendered as contract carriage and not as common carriage of
passenaers." ( 5 60039 [emphasis added].)
Further, an "exempt bus operator" is "any person that owns, operates, or controls an
exempt bus operation." (5 60040.)
With regard to transportation services Taxpayer provides under contract or agreement
with each of the entities in question:
1. ,' . . _ .. :Metropolitan Transit District (Transit District), Taxpayer qualifies as an
Exempt Bus Operator, pursuant to section 60039, subdivision (a)(2).
2. E
_ -Unified School District (School District), Taxpayer qualifies as an
Exempt Bus Operator, pursuant to section 60039, subdivision (a)(5) and (6).
3. Cityof:
(City), it appears that Taxpayer does not qualify as an Exempt Bus
Operator, pursuant to section 60039, subdivision (b), because the service is a charterparty carrier activity re~deredas contract carriage and not common carriage.
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Edward W'. :King, Chief
August 21,2006
Page 4 of 8
@
shuttle schedule and route map which are incorporated as part of the agreement.' (Vendor
Agreement, 71A. & 2.) It is our understanding that only persons who are employed by a
in City,
designatited &sup of employers, whose businesses are located in L, - --are served in accordance with Taxpayer's agreement with City. (Thus, it appears that the
services are rendered as contract carriage, not common carriage.) According to this agreement,
otherwise support the
these ezployers hzve executed a consortiuiil agreement to financially
"employer-based BART and Caltrain shuttle program." (See Vendor Agreement, $[I
B. & E.
[designating these employers as "Participating Employers"] .)
Section 60039, subdivision (b), quoted above, excludes from the definition of "exempt
25;iier of passengers," as defined
bus operation" any operation constnsd to be 2 ''~harter-i;a~~y
by the Public Utilities Code, plils some operations that the Public Utilities Code excludes from
the definition.
2S
-
.L
Section 5360 of the Prabilc 'i!tilities Code defines a "'shzier-party carrier ~f D ~ S S ~ ~ E ~ I - S ' ~
e.cteryyerson mg3geci 13the t r Z z ~ ~ r t x i~f~~z~ T S G ESy
S i n ~ tvehicle
~.r.
fkir coi~xpensation,
whether in comaon or contract carriage, over any public highway in [California]." Section 5353
of the Public Utilities Code excludes from the definition of "charter-party carrier of passengers"
specific types of transportation services. As is relevant here, under most circumstances,
"[t]ransportation service rendered wholly within the corporate limits of a single city or city and
county and licensed or regulated by ordinance7' w o ~ l dbe excluded from the def;s,ition. (Pilb.
Util. Code, $ 5353, subd. (a).)
However, for purposes of section 60039, subdivision (b), such a transportation service is
declared to be a "charter-party carrier of passengers" that is not eligible as an exempt bus
operation "if that transportation service is rendered as contract carriage and not a common
carriage of passengers." (8 60039, subd. (b) [emphasis added].) "Common carrier" is defined in
the Public Utilities Code to mean "every person and corporation providing transportation for
compensation to or for the public or any portion thereof, except as otherwise provided" and
includes '"[e]very passenger stage corporation' operating withn this state." (Pub. Util. Code
$8 2 11 & 21 1, subd. (c).) There is no definition of "contract carriage" in the Public Utilities
Code, but, in the Civil Code, "contract of carriage" is defined as "a contract for the conveyance
of property, persons, or messages, from one place to another." (Civ. Code, $2085.)
a
The transportation service provided by Taxpayer, pursuant to its agreement with City,
appears to be "wholly withm the corporate limits" of City and "licensed or regulated by
ordinance" by City, which would normally not constitute a "charter-party carrier of passengers,"
pursuant to Public Utility Code section 5353, subdivision (a). However, t h s service is rendered
as contract carriage, not common carriage, and, therefore, constitutes a "charter-party carrier of
passengers" for purposes of section 60039, subdivision (b). Accordingly, the transportation
services Taxpayer provides pursuant to its agreement with City do not qualify as an "exempt bus
operation" under section 60039.
Exhibit "A,"the "shuttle schedule and route map," is not included in the documents received 50111Taxpayer.
.
Edward W. King, Chief
August 21,2006
Page 5 of 8
Broker Contract
Taxpayer has provided copies or partial copies of contracts between itself and Broker,
both with Broker's current owner and with Broker's prior owner, and between Broker's prior
owner and the consracring m~nicipalcorporation. axpayer has not prov~deda copy of my
contract or agreement between Taxpayer and the contracting lxunicipal corporation or of any
other document evidencing contractual privity4between Taxpayer and the contracting municipal
corporation.
-
Sectior, 60839, s.~bdi~isioil(ii)(2),
specifies that, to quaiie as an "exempt bus operation,"
a "private entity" must provide transportation services "under contract or agreement . . . with a
public agency." Nothing in the documents Taxpayer provided supports the contention that
Taxpayer is in contractual pnvity with the contracting municipal corporation, the "public
agmcy." Taxpayer has a r,or?tracb~z!re!zr;rictnsHip C~DJY
wig9 Brake:. znd Bmker is "~~iholly
respocsible fcr the ~;;;i~~i:r r.;v'si:12bit perffinns
s e i ~ i i c eZ
j ~ ~,ork,
J
rqueszed by" &e
contracting municipal corporation. (Agreement Between the [contracting municipal corporation
and Broker's prior owner], 7 14.a.)
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California courts have consistentlyheld that "statutes granting exemption fiom taxation
are strictly construed to the end Lh2t ssflch concession will be neither enlarged Gor extended
beyond the plain meaning of the language employed."5 Further, "[tlhe party claiming tax
exemption has the burden of showing that it comes clearly within the terms authorizing
e~ern~tion."~
Section 60039, subdivision (a)(2), clearly states that the private entity must be providing
transportation services under contract or agreement with a public agencv. To conclude that
Taxpayer qualifies for an exemption as an "exempt bus operation," because it provides
transportation services pursuant to a contract with Broker, who has entered into a contract with
the contracting municipal corporation, the public agency, to provide transportation services,
would be to enlarge or extend the exemption "beyond the plain meaning of the language
employed."
4
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"Privity of contract" means, "[tlhat connection or relationship whch exists between two or more contracting
parties" that "was traditionally essential to the maintenance of an action on any contract." (Black's Law Dict. (6thed.
1990) p. 1199, col. 2.)
Cedars of Lebanon Hospital v. County of Los Angeles (1950) 35 C.2d 729,734;Honeywell Information Systems,
Inc. v. County of Sonoma (1974) 44 Cal.App.3d 23,27; Pa$ums-Corday, Inc. v. State Bd. ofEquaIization (1986)
187 Cal.App.3d 630, 637 (Parfims-Corday);AssociatedBeverage Co., Inc. v. Bd. ofEqualization (1990) 224
Cal.App.3d 192,211 (Associated Beverage); McDonnell Douglas Corp. v. State Bd. ofEquaIization (1992) 10
Cal.App.4th 1413, 1420 (McDonnell Douglas).
H.J. Heinz Co. v. Stale Bd. ofEgualization (1962) 209 Cal.App.2d 1 , 4 [25 Cal.Rptr. 6851; Parfums-Corday,
supra, I87 Cal.App.3d at p 637;Associated Beverage, supra, 224 CaI.App.3d at p 21 1; McDonneil L)orglai,
supra, 10 Cal.App.4th at p. 1420.
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Edwwd TV. King, Chief
August 21,2006
Page 6 of 8
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It does not appear, fiom the documentation provided by Taxpayer, that the transportation
services it provides under contract with Broker qualify for exemption as an "exempt bus
opsration" under sectisn 50033, s-sbdivisi~n(2)(2). Further, it does not zppex thzt a y of the
other definitions of "exempt bus operation" included in section 60039 apply to these
transportation services. Taxpayer has the burden of showing that these services do fall within
it bas aot dane sa.
or?e of the section 50035 definitions,
Regional Centers Contracts
Transportation services provided by Taxpayer under contracts with Regional Centers do
not qualify as "exempt bus operations" under section 60039. As noted above, section 60039,
sahdlvisi~fi(a)@), repires thzt Tapayer, as a primte eatity, provide trmsportation senrices
under contract or agreement with a "public agency." However, regional centers are operated by
"private nonprofit corporations," not public agencies. (See, e.g., Welf. & Inst. Code, 5 4621,
[slating "the: [State Department of Developmental Services] . . . shall connact with appropriate
~nvadienonprofit corpoi-atzonsfir the establish~entof regional 2cnte;-sy'(emphasis ad2ed)l; Ass~z.
c~&e?)eb2:?z,e!znl
S c ! - ~ . ,(1985)
j ~ ~ ~ 18 "21.36 384, 389
for -zeln?-&~
CL.tkC?M,_P
- C C LJ~"~' f r g v wI,,.i n
[noting that regional centers are operated by "private nonprofit con'p1uniQ agencies"].) The
sample contract provided by Taxpayer identifies the parties to the contract as Taxpayer and a
Regional Center, "a California nonprofit public benefit corporation." Therefore, the
transportation services Tzxpayer provides to Regional Centers do not qualify as an "exempt bus
operation" under section 60039, subdivision (a)(2), or any other subdivision of section 60039.~
a"ww
a
Use Fuel Tax Law
Specified entities that provide certain transportation services are partially8exempted from
paying the Use Fuel Tax, pursuant to the Miller-Hayes Act, codified as section 8655 in the Use
Fuel Tax Law. (5 8655, subd. (a).) As is relevant here, subdivision (b) of section 8655 provides
that no tax shall be imposed on the following:
rm . . . [TI
(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 .
[TII . - [TI
(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,
7
It appears, pursuant to its Vice PresidentIGeneral Manager's letter of January 15,2005, that Taxpayer may no
longer be claiming that the transportation services it provides under contract with the Regional Centers should be
determined to be exempt bus operations.
8
Entities that are exempted Som the tax under section 8655, subdivision (b) must, "for the privilege of operating
vehicles on state highways and freeways," pay to the Board one cent for each gallon or each 100 cubic feet of fuel
used. ( 5 8655, subd. (c).)
b
Ed.~\rardI&'. King, Chief
August 21,2006
Page 7 of 8
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 r passenger stage csi-px-atioii ;abject to the jirilscliction ~fthe Piiblic
Utilities Commission.
(51 Aiy school district . . . owaing, !c;sirg,
oi- o p e r ~ t i n gh s e s far the guqase of
transporting pupils to and from school and for other school . . . activities
involving pupils, inciuding, but not limited to, field trips and gthletic contests.
(6) Any private entity providing transportation services for the purposes specified
in paragraph (5) under contract or agreement with a school district . . . , only
wder those sentacts [sic] cr
f i r fuels c o n s ~ z s dwhile prcvidinn0 SP_~\~~SPIS
agreements. . . . (5 8655, subd. (b).)
Furtk~er,subdivision (dj of secrion 8655 provides rhzi:
~ ! dfGf& ip, c&+i~,r;~ig~
c2) . . , e&jl 32: hz a 3 ~ ! l y & l y P fidel
used by a charter-party canier 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. (5 8655, subd. (d).)
%t:
P):~::Z-J~:C~Z
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A
A comparison between language of the Use Fuel Tax Law exemption provisions and the
language of the Diesel Fuel Tax Law "exempt bus operation" provisions clearly demonstrates
that, for all intents and purposes, they are virtually the same. Subparagraphs (2), (4), (5), and (6)
of subdivision (b)of section 60039 are comparable to subparagraphs (2), (4), (5), and (6),
respectively, of subdivision (b) of section 8655. Further, the language of subdivision (b) of
section 60039 is comparable to the language of subdivision (d) of section 8655. Therefore, the
analysis provided above with respect to whether Taxpayer qualifies as an Exempt Bus Operator
under the Diesel Fuel Tax Law also applies to whether the Taxpayer qualifies for exemption
under the Use Fuel Tax Law.
Accordingly, with respect to the Use Fuel Tax and:
1. Transit District, Taxpayer qualifies for exemption, pursuant to section 8655,
subdivision (b)(2).
2. School District, Taxpayer for exemption, pursuant to section 8655, subdivision (b)(5)
and (6).
3. City, it appears that Taxpayer does
qualify for exemption, pursuant to section
8655, subdivision (d), because the service is a charter-party carrier activity rendered
as contract carriage and not common carriage.
b
Edward.!!V ICing, Chief
August 21: 2006
Page 8 of 8
4. Broker, Taxpayer does not qualify for exemption, pursuant to section 8655,
subdivision (bj(2).
5. Regional Centers, Taxpayer does @ qualify for exemptiorr, pursuzrt to section 8655,
subdivision @)(2).
If you have my questions regarding any of the above information or would iilce to discuss
these matters heher,plcase give me a cell.
cc:
Louie Feletto (MIC:33)
Doug Shepherd (M1C:65)
A ~ l oGilbert (MIC:33)
Todd Keefe (MIC:SEi)
2~14'
F ~ z (MlC:G2)
~ s