More than a dozen states pursue action on fuel tax rate changes

February 20, 2023

Keith Goble

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Fuel tax rates are a leading transportation topic at statehouses around the country.

Advocates for trimming fuel tax collection at the state level say the time is right for the move. They cite new federal funding for transportation purposes, higher fuel costs and budget surpluses that could cover reductions in fuel tax collections.

Arizona

An Arizona House bill calls for giving motorists and truck drivers a temporary break from paying state fuel taxes.

The state charges an 18-cent excise tax on gas purchases and a 26-cent excise tax on diesel. HB2707 would implement a 12-month fuel tax holiday from Nov. 1 to Oct. 31, 2024.

Connecticut

Since Jan. 1, the state of Connecticut is collecting a highway user tax on trucks. In response, one state lawmaker wants to give truckers some relief via the diesel tax.

On July 1, the state implemented a regularly scheduled adjustment to the diesel tax. As a result, the then-40.1-cent excise rate increased by 9 cents to 49.2 cents per gallon.

Diesel in the state is taxed following an annual formula that includes a fixed base and an adjustment that accounts for the average wholesale diesel prices from the prior year. Sen. Jeff Gordon, R-Woodstock, is behind an effort to return the diesel tax rate to 40.1 cents.

Additionally, SB126 calls for establishing a task force to recommend changes to the statutory formula that sets the applicable tax rate for diesel.

Illinois

A cost-of-living adjustment on gas and diesel purchases took effect the first of the year in Illinois. The rate increases were set for July 1, but Gov. J.B. Pritzker delayed them for six months because of rising inflation and high fuel prices nationwide.

As a result, the state excise rate on gas and diesel increased by 3.1 cents. The gas rate increased from 39.2 cents to 42.3 cents while the diesel rate increased from 45.7 cents to 48.8 cents.

Multiple pursuits are underway at the statehouse to provide relief at the pump. The first bill, HB1575, would trim the gas tax rate to 19 cents. The diesel rate would be reduced to 21.5 cents.

Additionally, municipalities in Cook County would no longer be able to collect a local fuel tax up to 3 cents per gallon.

A second bill would cap the gas excise rate at 18 cents. SB271 would put the diesel excise rate at 14.4 cents. One more bill would go the other direction on fuel tax collection. SB159 would authorize municipalities throughout the state to impose a local fuel tax.

Any municipalities to act would be limited to collecting no more than an additional 3 cents per gallon.

Maryland

Two Maryland bills would end automatic fuel tax rate adjustments.

Since 2013, the state automatically adjusts the tax rates for gas and diesel each July. The current rate for gas is 42.7 cents and the diesel rate is 43.45 cents. During the past decade, the rates have increased about 20 cents.

HB422 and SB261 call for ending automatic adjustments based on growth in the consumer price index for all urban consumers.

The change would decrease transportation revenues by $62.4 million in fiscal year 2024, a fiscal and policy note attached to the bill reads. Committee hearings have been held for both bills over the past 10 days.

Mississippi

A Mississippi House bill would open the door to local fuel tax collection in the state’s capital city.

The state collects an 18.4-cent excise tax on gas and diesel purchases. HB1383 would authorize the city of Jackson to impose a penny excise tax on gas and diesel purchases.

Local voters would get the final say on whether to impose a municipal tax. Revenue would be dedicated for local roads, streets and bridges.

Missouri

Multiple Missouri bills would provide some tax relief for many highway users.

A 2-year-old law will increase the 17-cent fuel tax rate by 12.5 cents to 29.5 cents over five years. A fuel tax rebate program is available for residents.

The first installment of annual 2.5-cent increases took effect in October 2021. The second installment went into effect on July 1.

The tax rate now is set at 22 cents for gas and diesel purchases. Additional 2.5-cent increases are scheduled to take effect each July through 2025.

Missouri residents are allowed to be refunded for the additional fuel tax collection. Refunds are limited to owners of vehicles weighing up to 26,000 pounds.

One bill would remove the weight limitation. As a result, SB259 would allow Missouri-based truck operations to take advantage of the refund offering.

Another bill, SB260, would repeal the tax increases and return the rate for gas and diesel to 17 cents.

Sen. Mike Moon, R-Ash Grove, says the state should relieve some tax burden on Missourians because roads are in good shape.

A separate bill would also repeal the 2021 tax increase and future increases included in the law.

In addition, SB242 calls for a 180-day fuel tax holiday during which no tax would be collected on gas or diesel purchases. Similarly, another Senate bill would repeal the 2021 law. SB454 does not include a fuel tax holiday.

Nevada

Newly elected Nevada Gov. Joe Lombardo wants to give highway users a temporary break from fuel expenses.

During his first State of the State address, the Republican governor proposed suspending the state’s gas and diesel excise rates for one year. The state diesel excise rate is 27 cents. The gas rate is 23 cents.

Speaking to the Democrat-led Legislature, Lombardo said state government has “more money than we can responsibly spend” and one thing they can do with the money is aid consumers at the pump.

He said the 12-month tax break would save consumers $250 million.

“Working with local gas station operators, the petroleum industry, and the attorney general’s Consumer Affairs Division, we will make certain that these savings exclusively benefit taxpayers,” he said. “Using our budget surplus to provide tax relief won’t negatively affect our fuel-tax funded road and construction program or impair bonds.”

The legislature must agree to the tax holiday.

New York

On the heels of the sunset of a seven-month tax holiday on gas and diesel purchases in the state, multiple measures would continue price breaks.

The Empire State charges about 33 cents per gallon for gas and diesel. There are multiple components that make up the state’s fuel tax collection.

There is an 8-cent excise tax and a 17.3-cent petroleum business tax. Additionally, there is an 8-cent state sales tax.

Gov. Kathy Hochul acted last spring to suspend collection of the excise tax and state sales tax through the end of the year. The Democratic governor’s action trimmed fuel rates by 16 cents per gallon.

Sen. Jim Tedisco, R-Glenville, has introduced a bill to put into statute rules to help shield consumers from high fuel costs.

SB2174 would suspend collection of the excise tax and state sales tax when fuel prices reach $2.25 per gallon. The petroleum business tax would also be eliminated once prices reach $3 per gallon.

New York City and counties throughout the state would also be authorized to adopt local laws limiting tax on gas and diesel. A related effort, AB1690/SB3124, would suspend collection of the state sales tax on gas and diesel purchases for two years. Localities also would be permitted to suspend their portion of sales tax.

Bill sponsors say the sales tax is considered one of the most regressive taxes imposed on New York state residents.

“The windfall of additional state sales tax revenue from inflated prices of goods should not be compounded on the backs of New York consumers,” sponsors wrote in a bill memo.

Ohio

An Ohio Senate bill would provide relief for truckers and motorists from a recent increase in fuel tax rates.

A 2019 transportation budget deal included raising the 28-cent fuel tax rate to 38.5 cents for gas and from 28 cents to 47 cents for diesel. Sen. Stephen Huffman, R-Tipp City, is renewing his pursuit to return the gas and diesel tax to the 2019 rate.

The bill, SB48, would implement the rate reductions on Jan. 1, 2024. A previous pursuit by Hoffman would have kept the tax rate at 28 cents for five years.

Huffman said money coming into Ohio from the federal infrastructure law would offset the $1.5 billion annual revenue loss. He has said the federal money would result in a $2.3 billion annual boost for the state.

Gov. Mike DeWine previously urged state lawmakers to not pursue lowering the state’s fuel tax rates. The Republican governor has said any plan to lower fuel tax rates would be “a mistake.”

Pennsylvania

One bill in the Pennsylvania House is touted to reform the state’s fuel tax collection.

On Jan. 1, Pennsylvania’s 57.6 gas tax rate increased 3.5 cents to 61.1 cents per gallon. The 74.1-cent diesel rate rose 4.4 cents to 78.5 cents. The changes are because of the state’s variable-rate fuel taxes.

Since 2013, the state taxes increase automatically when the average fuel price exceeds $2.99 per gallon. The Pennsylvania Department of Revenue determined that over the past year, the average price statewide exceeded that amount triggering the latest increase.

The Senate voted in January to advance a bill to put a stop to automatic increases in gas and diesel excise taxes.

Senate Transportation Committee Chairman Wayne Langerholc, R-Cambria, is behind the bill to roll back the excise tax rates to the amounts collected on Dec. 31. Additionally, the average wholesale price would be set permanently at $2.99 per gallon.

Langerholc said the changes would end automatic tax hikes.

“My legislation will cut the gas tax before hardworking families must pay the second highest gas tax in the nation,” Langerholc said in a news release. “At a time when our constituents are faced with rising costs at the pump, grocery store and utility bills, no elected official should be voting against this legislation.”

Instead, advocates say lawmakers should be responsible for making decisions on possible fuel rate increases. The bill, SB35, awaits assignment to committee in the House.

Texas

Efforts underway in the Texas Legislature would authorize fuel tax rate increases.

The state now collects a 20-cent-per-gallon excise tax on gas and diesel purchases. According to the Texas comptroller, the rate is unchanged since October 1991.

One bill would significantly raise the excise tax. SB254 would increase the 20-cent excise rate to 40 cents for gas and diesel purchases. The change would take effect on Sept. 1.

Sen. Sarah Eckhardt, D-Austin, says that updating the gas and diesel tax is only part component of how the state should cover needed transportation revenue. Other sources she touts on her website are tolls and other user taxes “that can capture and fund increases in alternative transportation of goods, people, services and information.”

Another bill would index the excise tax to the highway cost index. Specifically, HB321 would authorize the tax rate to increase or decrease each Jan. 1 based on the cost of certain highway projects.

Rep. Ray Lopez, D-San Antonio, has said that indexing would allow the tax rate to keep pace with the rate of rising costs of highway construction and add long-term stability.

Utah

Fuel tax collection is the topic of two Utah bills.

The state now charges a 36.4-cent tax on gas and diesel purchases.

The Utah Tax Commission adjusts the fuel tax rate annually. The commission recalculates the rate by charging 16.5% of the average motor fuel price charged by refineries to retailers at the rack.

House lawmakers have approved a bill to change the calculation of the fuel tax, and a $5 increase in all vehicle registration fees.

HB301 would decrease the fuel tax rate to 34.5 cents on July 1. The change would result from dropping the rack rate from 16.5% to 14.2%.

The rate would increase to as much as 42 cents in 2028. The change is estimated to reduce state tax revenues by about $35.4 million in fiscal year 2024. To help cover revenue loss, the bill would add a 12.5% tax on electricity from electric vehicle charging stations. HB301 is in the Senate Rules Committee.

The second bill, SB202, would lower the fuel tax rate by 4.5 cents. Additionally, the rack rate would be trimmed by 1.9% to 14.6%.

The bill also would remove the $2.43 per gallon cap on the statewide average rack price. The rate price would increase to $2.57 per gallon in 2025 and increase to $2.75 per gallon thereafter starting in 2026.

A fiscal note attached to the bill states that passage could result in the loss of about $33.3 million in state revenues for fiscal year 2024.

West Virginia

Two West Virginia House bills cover fuel tax collection.

The first bill, HB2826, would eliminate one component in establishing the state fuel tax rate.

Fuel tax rates in the state are comprised of two components. The excise rate is 20.5 cents for gas and diesel. The variable rate on both fuels is 16.7 cents.

The variable rate, which is equal to 5% of the average wholesale price of motor fuel, is revised each January. The most recent increase was 1.5 cents. The bill would remove the variable rate on state fuel tax collections.

The second bill, HB3324, would set a flat excise rate of 20 cents. The variable rate would be eliminated. LL

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