Fuel tax rate changes pursued in 12 states

February 24, 2021

Keith Goble

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In statehouses from West Virginia to Wyoming legislators are looking at implementing changes in fuel tax collections.

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 met their demise.

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, sought to 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, called for gradually increasing the fuel 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.

Gov. Doug Ducey previously indicated he is opposed to a tax increase. The bills did not advance from their originating chamber by the Feb. 18 deadline.

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.

Municipalities imposing a local fuel tax under the proposed law would be limited to collecting up to an additional 3 cents per gallon.

A similar bill would grant counties throughout the state permission to impose a local fuel tax.

Currently, the counties of McHenry, DuPage and Kane have in place 4-cent-per-gallon local fuel taxes.

Sponsored by Rep. Will Guzzardi, D-Chicago, HB1846 specifies that proceeds from the tax must be applied to maintenance and construction of “essential transportation-related infrastructure.”

Kentucky

Two bills in the Kentucky House are intended to raise fuel tax 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 have 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.

A separate bill is back from one year ago to raise fuel tax rates. Other vehicle fee increases also are included in the bill.

Sponsored by Rep. Sal Santoro, R-Florence, HB561 would raise the gas tax rate by 8.6 cents to 34.6 cents. The diesel rate would be increased by 11.6 cents to 34.6 cents.

An additional surtax of 4.3 cents for gas and 7.2 cents for diesel would also be tacked on to fuel purchases.

One cost reduction tied to fuel tax rates would eliminate collection of the supplemental highway user tax collected on gas and diesel purchases. The fee is a nickel on each gallon sold.

After all the reshuffling, the new gas tax rate would be 33.9 cents and the diesel rate would be 36.8 cents.

The tax rates would also be adjusted annually based on a federal construction index.

Louisiana

Discussion continues at the Louisiana statehouse about an anticipated effort to 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 and Louisiana Department of Transportation and Development Secretary Shawn Wilson previously have said they support a fuel tax increase. This year, however, both officials have indicated it does not appear to be the right time. They cite the struggling economy.

Mississippi

The House Ways and Means Committee voted to advance a bill to authorize a statewide referendum to raise the fuel tax.

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

Sponsored by House Ways and Means Chairman Trey Lamar, R-Senatobia, the bill would raise the gas rate by a dime to 28 cents. The diesel tax would rise by 14 cents to 32 cents.

Nod to truckers

A change made to the bill in committee would phase in the tax increases.

“This is to ease a little burden on our truckers,” Lamar said during the hearing. “I’ve got nothing but positive feedback from truckers in this state.”

He cited existing contracts that truckers have to purchase fuel.

Starting July 1, the gas tax would increase by a nickel and the diesel tax would be raised by 7 cents. The remaining increases would take effect on Jan. 1, 2022.

The tax rates would be indexed to allow for regular increases in 2031.

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Revenue would be used for specified road and bridge work totaling $2.5 billion.

The bill, HB1364, awaits debate on the House floor. If signed into law, voters would get the final say this spring.

Another bill in the House Ways and Means Committee would raise the gas tax rate by 8 cents to 26 cents. HB574 would implement the increases 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.

Missouri

An effort underway at the Missouri statehouse is 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.

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 on the Senate floor.

Montana

Months after voters in the city of Missoula approved a local gas tax to provide a boost for local transportation work, a House bill would do away with the tax increase.

Rep. Matt Regier, R-Kalispell, is behind a bill to repeal the 2-cent local excise tax on gas purchases. Diesel fuel was excluded from the increase.

Critics of the gas tax increase say it is the wrong time to impose more tax on motorists. Others have said the county should take steps to better manage revenues already available.

To make matters worse, critics have said the local tax is simply piling on when you take into consideration the recent statewide fuel tax rate increases.

The Montana Legislature approved a fuel tax increase four years ago to eventually raise $49 million annually for state and local roadways.

The state’s gas tax rate has since increased by 5 cents to 32 cents. Another penny increase will be phased in through 2023.

Similarly, the state’s diesel rate has since increased by about 1.5 cents to 29.45 cents. Another one-half cent increase will be implemented over three years.

Regier’s bill, HB464, is in the House Transportation Committee.

New Mexico

In New Mexico, the Senate Tax, Business and Transportation Committee has approved a bill to 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, SB168 would raise both 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.

According to a fiscal note attached to the bill, the tax increases would raise $63.6 million by fiscal year 2025 for state and local roads.

The bill awaits further discussion in the Senate Finance Committee.

North Dakota

The North Dakota House voted 62-32 to advance an amended bill to increase the state’s fuel tax rate. Owners of alternative fuel vehicles also would pay more.

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 3 cents to 26 cents. The original version called for a 6-cent increase.

Additionally, the $120 and $50 road use fees for electric and hybrid vehicles would be increased to $200 and $100 respectively.

The bill now heads to the Senate 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 a 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 include is a $10 fee 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.

West Virginia

One West Virginia lawmaker wants to give truck drivers a break on fuel taxes.

The state now collects a 20.5-cent excise tax on fuel purchases.

Sponsored by Rep. Tom Fast, R-Fayette, the bill would require a refund for diesel fuel consumed by a commercial vehicle for operation outside the state.

HB2523 is in the House Technology and Infrastructure Committee.

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.

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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.