Texas state lawmaker wants to increase fuel tax

As the Texas Legislature prepares for the start of the first regular session in two years, one state lawmaker is hopeful to enact the state’s first fuel tax rate increase in 30 years.

Road funding sources

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

The fuel tax generates about $3.7 billion annually.

The excise tax is not the lone source of revenue for roads. Another $1.38 billion annually in oil and gas severance tax revenue is routed to the highway fund. The fund also receives a portion of the state’s general sales tax and motor vehicle sales tax.

Specifically, up to $2.5 billion of net revenue annually is deposited into the highway fund from the state sales tax, after total sales tax receipts exceed $28 billion. The fund also receives 35% of state vehicle tax revenue above the first $5 billion collected.

Long overdue

Sponsored by Rep. Ray Lopez, D-San Antonio, the bill would increase the excise rate on gas and diesel by 2 cents to 22 cents per gallon.

Additionally, the “Two Cents for Texas Act” would index the tax to the consumer price index. Each Jan. 1, the rate of the fuel tax would be increased or decreased by a percentage that is equal to the consumer price index percentage change for the preceding fiscal year.

Lopez 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.

“The existing motor fuels tax has left infrastructure expansion projects at a precarious impasse and Texans are tired of being forced to pay high costs to use toll roads or waste hours sitting in traffic on congested highways,” Lopez said in prepared remarks.

He added that indexing would reduce the need for borrowing to get projects done.

Revenue boost from Texas fuel tax

Lopez said the bill would raise more than $2.5 billion in the first five years. Revenue would be earmarked for transportation and schools.

The state’s existing tax formula allots 75% to the highway fund and the other 25% is applied to the school fund.

“In the shadows of the economic downturn due to COVID-19, we must find quick and trustworthy ways to revamp our economy,” he said.

HB207 awaits assignment to committee for the regular session that begins Jan. 12. LL

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