Fuel tax rate changes possible in 11 states

February 17, 2021

Keith Goble

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In statehouses across the nation, legislators are looking at implementing changes in fuel tax collection.

The Owner-Operator Independent Drivers Association believes increasing the fuel tax is the most equitable way for states to generate additional revenue.

Arizona

Two Arizona bills to increase fuel tax rates are running out of time.

Arizona now charges 18 cents per gallon on gas purchases and 26 cents on diesel purchases. Unchanged since 1991 and 1993, the tax rates raise about $750 million annually.

The first bill, HB2436, would allow for regular increases in the tax rates. Specifically, the bill would annually adjust the tax rates to reflect the average change in the consumer price index. The rule would take effect in July 2022.

A second bill, SB1650, would gradually increase the tax rates in the Phoenix area.

Fuel taxes in Maricopa County would increase a penny annually. Additionally, the taxes would be indexed to annual inflation.

The additional tax on gas would be in place for 20 years. The added diesel tax would not have a sunset date.

Voters in the county would have the final say.

The likelihood of a tax increase this year is considered bleak. A two-thirds vote in both statehouse chambers is required to advance a tax change to the governor’s desk. Gov. Doug Ducey also has indicated he is opposed to a tax increase.

The deadline for bills to advance from their originating chamber is Thursday, Feb. 18.

Illinois

An Illinois Senate bill would allow cities around the state to collect their own fuel tax.

The state collects 38.7 cents per gallon on gas purchases and 46.2 cents on diesel. Since Jan. 1 in Chicago, another 8 cents per gallon is collected on gas and diesel purchases – up from 5 cents.

Sponsored by Sen. Patrick Joyce, D-Essex, SB120 would authorize municipalities throughout the state to impose a local fuel tax.

Any municipalities to act would be limited to collecting up to an additional 3 cents per gallon.

 Indiana

One Indiana bill would freeze fuel tax rates.

A 2017 state law increased the gas and diesel rates by a dime. The 11-cent surcharge tax on diesel also increased by 10 cents and started being collected at the pump instead of being collected quarterly through tax filing reports. In addition, tax rates were set to be indexed on an annual basis through 2024.

As a result, the gas and diesel rates now are set at 31 cents and 51 cents per gallon.

Rep. John Jacob, R-Indianapolis, is behind a bill to eliminate the annual index factor for the rates beginning July 1. Specifically, HB1518 would revert the gas and diesel taxes to the rates in effect June 30, 2020. As a result, the gas tax would be set at 30 cents per gallon and diesel would be 49 cents.

A fiscal impact statement attached to the bill shows the estimated revenue losses to the state highway fund and the motor carrier fund would total between $131 million and $159 million annually by fiscal year 2025.

The bill is in the House Roads and Transportation Committee. The deadline to advance from the House is Monday, Feb. 22.

Kentucky

A new bill in Kentucky is intended to raise fuel rates in the state.

Kentucky now collects 26 cents per gallon on gas purchases. Diesel purchases net the state 23 cents per gallon.

The taxes are linked to wholesale fuel prices, which allows for regular adjustments. However, since 2016 a “floor” was implemented to prevent rates from dipping.

As a result, the rates has remained unchanged.

The bill would remove the link between fuel taxes and wholesale fuel prices.

Instead, the tax rates would be adjusted annually based on a federal construction index. The initial base rate would add 4.3 cents per gallon for gas and 7.2 cents for diesel.

HB508 is in the House Transportation Committee.

Louisiana

An anticipated effort at the Louisiana statehouse would more than double the state’s 20-cent fuel tax rate.

Rep. Jack McFarland, R-Jonesboro, has indicated he soon will introduce a bill to increase the excise tax by 10 cents initially. Additional increases of two cents would be made every other year through 2033.

Once fully implemented, the tax rate would reach 42 cents.

Each additional penny increase is estimated to raise about $30 million.

Approval at the statehouse would require a two-thirds majority vote.

Gov. John Bel Edwards previously has supported a fuel tax increase. This year, however, Edwards has indicated he does not believe it is the right time. He cites the struggling economy.

Mississippi

Two bills in the Mississippi House would raise revenue via fuel tax rate increases.

The state’s current fuel excise tax is 18 cents. It is unchanged since 1987.

The first bill would raise the gas tax rate by 8 cents to 26 cents. The increases would be implemented in 2-cent increments over four years.

The diesel rate would be increased by 12 cents to 30 cents over the same time. The increases would be implemented in 3-cent increments.

HB574 awaits consideration in the House Ways and Means Committee.

The second bill would apply solely to Marion County.

HB947 would allow voters in the locale west of Hattiesburg along the Louisiana line to decide whether to impose a local tax on gas and diesel sales up to 5 cents per gallon.

Revenue would be dedicated for local roads, streets and bridges.

Missouri

Efforts underway at the Missouri statehouse are touted as an aid to address long-term funding to complete road and bridge work. The state’s 17-cent fuel tax rate has remained unchanged since the mid-90s.

According to a fiscal note attached to the bill, the fuel tax raised $698.7 million in fiscal year 2020.

State officials report the state has $8 billion to $10 billion in unfunded needs for the transportation system.

In an effort to address the shortfall, the Senate Transportation Committee voted to advance an amended bill to raise the fuel tax rate by 10 cents to 27 cents per gallon.

The increase would be phased in over five years. Starting Jan. 1, 2022, the tax would be increased by 2.5 cents every two years until 2027.

The dime increase is estimated to raise an additional $411 million annually.

Senate President Dave Schatz, R-Sullivan, revised his bill in committee to include the option for Missouri residents to apply for an exemption and refund.

SB262 awaits further consideration in the Senate.

A similar House version would increase tax rates by 2 cents annually for five years. The tax refund provision is included.

“By giving taxpayers the option to obtain a rebate, we can strike a balance that generates the funding we need while also protecting taxpayers who don’t want to see their tax bill go up,” House Transportation Chair Becky Ruth, R-Festus, said in prepared remarks.

Her bill, HB1044 awaits assignment to committee.

New Mexico

Pursuit underway at the New Mexico statehouse would raise the state’s excise rates.

The state now collects a 17-cent excise tax on gas and a 21-cent tax on diesel.

Sponsored by Sen. Bobby Gonzales, D-Ranchos de Taos, the bill would raise booth rates by a nickel over five years. At that time, the gas rate would be set at 22 cents and the diesel rate would be 26 cents.

SB168 is in the Senate Tax, Business and Transportation Committee.

North Dakota

A revised bill in the North Dakota House would increase the state’s fuel tax rate to boost transportation funding.

The state now collects 23 cents per gallon on diesel and gas sold.

Sponsored by Rep. Vicky Steiner, R-Dickinson, HB1464 would increase the excise rate by 6 cents to 29 cents.

Additionally, the $120 road use fee for electric vehicles would be increased to $250, and the $50 fee for hybrid vehicles would be increased to $150.

The bill is in the House Finance and Taxation Committee.

Washington

Washington House Democrats have announced plans to pursue an increase of the state’s 49.4-cent fuel tax rate.

The 16-year, $26 billion funding package includes an 18-cent increase in the gas tax rate. The tax would be raised by 10 cents this year and by another 8 cents in 2022.

The diesel rate would be increased by the same amount with an additional 3-cent boost.

Tax rates would also be tied to inflation, allowing for annual increases.

“Our proposal is much more substantial than any in state history because the needs and challenges are so much bigger,” House Transportation Chairman Jake Fey, D-Tacoma, said during a news conference detailing the plan.

A 67.4-cent gas rate and a 70.4-cent diesel rate are projected to raise about $1 billion annually.

Additionally, the House Democratic package would include a new carbon fee.

The fee has been described as an aggressive policy to combat climate change that charges polluters for the right to emit carbon dioxide and other greenhouse gases.

The carbon fee would start at $15 per metric ton of carbon. It is estimated the levy would add about 14 cents to each gallon of fuel. The fee would increase by $5 per ton of carbon emission in 2023 and again in 2025 to total $25 per metric ton.

Also included is a $10 increase on truck license fees by weight and a $25 fee increase for IFTA decals.

About two-thirds of all revenue raised would be allotted for highway related work. Most of the balance would be applied for carbon reduction initiatives.

Wyoming

The state’s current tax rate of 24 cents per gallon is unchanged since 2013.

The Joint Revenue Interim Committee has introduced a bill to tap the existing funding source to enhance support for state and local road projects. Specifically, the legislation would increase the tax on gas and diesel by 9 cents to 33 cents per gallon. The tax on alternative fuels would be raised by the same amount.

Each penny increase is estimated to raise $6.7 million yearly.

The Wyoming Department of Transportation reports $135.6 million in unfunded operating expenses. The amount includes $72.3 million in construction and maintenance.

The bill, HB26, would raise an estimated $60.3 million annually for state and local roads, according to information provided by the agency.

A fiscal note attached to the bill shows that the state’s highway fund would collect about $40.2 million. Another $14.1 million would be allotted to county roads, while cities and towns would get $5.9 million. The remaining $1.2 million would be set aside for state parks. LL

More state trends

Keith Goble, state legislative editor for Land Line Media, keeps track of many trends among statehouses across the U.S. Here are some recent articles by him.

Keith Goble

Keith Goble has been covering trucking-related laws since 2000. His daily web reports, radio news and “OOIDA’s State Watch” in Land Line Magazine are the industry’s premier sources for information regarding state legislative affairs.