Extras on Excise: Alaska - The Last Frontier for Cheap Gas

Alaska is joining the ranks of states considering raising state fuel taxes in order to generate additional revenue. Alaska Gov. Bill Walker (I) introduced a bill on Dec. 15, 2016, that would increase taxes on all motor fuels, including highway, aviation and watercraft fuels, as part of his budget plan to reduce the state’s deficit and raise revenue.  

Alaska has not increased tax rates on motor fuels since 1970. The tax rate for gasoline and diesel is currently $0.08 per gallon plus an additional surcharge of $0.0095 per gallon. Local sales taxes and the state’s spill prevention tax bring the statewide average to $0.1225 for gasoline and $0.1275 for diesel fuel. These motor fuel rates are currently the lowest in the nation, according to an American Petroleum Institute (API) report.

Under the governor’s plan, the tax increase would be implemented in two phases. The first phase would increase the tax on highway fuels from $0.08 to $0.16 per gallon; for watercraft fuel, from $0.05 to $0.10; for jet fuel, from $0.032 to $0.064 per gallon; and for aviation gasoline, from $0.047 to $0.094 on July 1, 2017. The second phase would increase the tax on highway fuels to $0.24; for watercraft fuel, to $0.15; for jet fuel, to $0.096; and for aviation gasoline, to $0.141 on July 1, 2018. Even with the increases, however, Alaska’s fuel taxes would be lower than the current national average.

The proposed tax increase could raise $80 million a year once fully implemented, according to the fiscal note analysis. Sixty percent of the revenue generated from the tax on aviation fuel would be refunded to municipalities owning or leasing an airport and the remainder would be distributed to a special aviation fuel tax account in the transportation maintenance general fund reserved for airport projects. Proceeds from the watercraft fuels tax would be deposited into the transportation maintenance general fund for the construction of waterway and harbor projects. Proceeds from highway fuels tax would be used for “direct capital, operating, or maintenance costs of highways and highway infrastructure.”

Transportation infrastructure funding has been a national hot topic with outdated fixed-rate gas taxes and rising costs of building and maintaining highway construction. Gas revenues have declined due to increased vehicle fuel efficiency and the increase in use of hybrid and electric vehicles.

In Alabama, for example, the Association of County Commissions of Alabama is supporting a $1.2 billion bond issuance for road construction to be repaid by a $0.03 gas tax increase when the legislative session begins Feb. 7. In Tennessee, Gov. Bill Haslam (R) announced a plan to increase the fuel tax on gas by $0.07 to $0.284 per gallon and by $0.12 to $0.304 per gallon for diesel. The revenue generated would fund transportation projects, as reported by Bloomberg BNA reporter Andrew M. Ballard in the Weekly State Tax Report

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Which state will increase its motor fuels tax next?

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