New Year Triggered Changes in State Gas Tax Rates: Five Cuts, Four Increases

AASHTO Journal, 8 January 2016

Amid falling prices for gasoline and other motor vehicle fuels, five states began the new year with their fuel-based tax rates declining while four more saw increases due to various types of legislation.

The Jan. 1 declines in the taxes that states use to help fund transportation infrastructure improvements came mostly due to laws linking the rates to the fuel price, the Tax Justice Blog reports.

Taxing fuel on its value had long been a way for states to automatically boost receipts as motor fuel prices rose, but the sharp price declines since mid-2014 have drained state road funding in states that use percentage tax systems for at least part of their revenue stream.

gaspump2.jpg​ The blog, which is published by the Institute on Taxation and Economic Policy and Citizens for Tax Justice, said fuel tax rates fell this month in New York, North Carolina, Vermont and West Virginia because of price-linked taxing structures. The rate also declined modestly in Pennsylvania, the report said, under a 2013 law that worked in this 2016 reduction but with “significantly larger increases in 2014, 2015 and 2017.”

Falling pump prices and a resulting drop in projected revenue caused Kentucky’s governor to order a budget cut this month for the state’s Transportation Cabinet. (See story in this week’s States section.) And oil-dependent states of Alaska and Oklahoma are locking in spending cuts to cope with shrinking receipts from taxes and royalties tied to the value of mineral production.

The blog reported that Jan. 1 brought higher fuel tax rates in Florida, Maryland, Nebraska and Utah. Florida’s 0.1 cent increase, the blog said, is “due to a forward-thinking law, in place for more than two decades, that links the state’s gas tax rate to growth in a broad measure of inflation in the economy.”

Maryland’s 0.5-cent hike kicks in under a 2013 transportation funding law that counted on Congress passing legislation empowering states to collect sales taxes owed on Internet purchases, and required future fuel tax increases if Congress did not act. Since the Internet taxation issue remains unsettled, the state’s gas tax increase was triggered. Another increase will take effect July 1 unless Congress acts.

Nebraska’s tax rate rose 0.7 cent and Utah’s increased 4.9 cents under legislation passed in 2015 to boost transportation project funding.

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