Alabama fuel tax rates increase Oct. 1

Fuel taxes in Alabama will go up in a few weeks.

On Oct. 1, the state’s gas and diesel tax rates each will increase by a penny. The rate changes mark the beginning of another phase of a 4-year-old Alabama law to raise road revenue.

Four years in the making

In 2019, Gov. Kay Ivey signed into law a bill to increase fuel tax rates for the first time in nearly 30 years.

The Rebuild Alabama Act authorized tax rates to be increased by 10 cents over three years. In fall 2019, the gas tax rate was raised by 6 cents to 24 cents. The diesel rate also increased 6 cents to 25 cents.

The following two years, additional increases of 2 cents were applied for gas and diesel. As a result, the gas rate reached 28 cents, and the diesel rate reached 29 cents.

Revenue jolt

Tax collection from the Rebuild Alabama Act is estimated to raise $323 million annually.

Two-thirds of the revenue goes to the Alabama Department of Transportation. Counties collect 25% of additional funds, and cities receive 8%. The money is used to fund infrastructure improvement, preservation and maintenance projects.

Indexing

The state is not done tapping the excise tax to raise additional transportation revenue.

Starting next month, excise rates also will be indexed. The four-year-old transportation deal authorized rate changes to occur on Oct. 1, 2023 and on July 1 of every other year thereafter.

This change to indexing allows for the fuel tax to rise automatically by the percentage change in the yearly average of the National Highway Construction Cost Index.

The increase or decrease of the excise rates is capped at one penny.

The upcoming changes will increase the excise rate for gas to 29 cents and for diesel to 30 cents.

Grants programs

Also included in the Rebuild Alabama Act is a grants program for local highway and bridge work.

The program requires the state DOT to set aside $10 million annually from the state’s share of the fuel tax increase for local projects. LL

More Land Line coverage of news from Alabama is available.