Extras on Excise: High-Octane Gas Tax Debates and Maneuvers Fuel Reforms

Georgia drivers are getting a preemptive tax break this summer, after Georgia Gov. Nathan Deal (R) recently issued an executive order suspending a gas tax increase scheduled for July 1.

Recent increases in gas prices would have meant an increase in Georgia’s motor fuel tax, too. The Georgia Department of Revenue sets the motor fuel tax based on an average of prices every six months. A $0.45 increase in the average price of gas per gallon since January would have led to a 15 percent increase in the state gas tax, according to a press release issued by Georgia Gov. Nathan Deal (R).

“We’re seeing a steady rebound in Georgia’s economy, with our unemployment rate going down and state revenues heading up, but Georgians are still paying gas prices that are high by historical standards,” Deal said in the release.

Gas taxes are a politically volatile subject, no matter where they are being discussed. Only time will tell whether this gives Deal a political boost in a year when he faces re-election.  

Since 2013, six states and the District of Columbia passed legislation to raise or change their gas taxes, according to the National Conference of State Legislatures. New Hampshire is the first state to do so in 2014, and several more states, including Michigan, have pending legislation.

 In New Hampshire, gas tax bill sponsor State Sen. Jim Rausch (R) told Bloomberg BNA in a recent Weekly State Tax Reportarticle that increasing the gas tax is not an easy sell, even when it has not been increased for decades. Until New Hampshire passed its recent gas tax bill, the state gas tax had been frozen at 18 cents per gallon since 1991. Rausch said he had wanted to index the tax to inflation as a way to keep the funding source sustainable, but he thought doing so would have killed the bill.

In Michigan, the fuel tax debate is robust and ongoing. Michigan’s gas tax was last increased in 1997, bumping the previous 15-cents-per-gallon rate up to 19 cents per gallon, according to the fiscal analysis of H.B. 5477 and H.B. 5493, two related gas tax bills that passed the Michigan House in May. 

Now, lawmakers there are trying to figure out what kind of gas tax structure they want. H.B. 5477 as passed in the House would do away with the current flat, 19-cents-per-gallon rate to a rate that would change each year based on a calculation made by the Michigan Department of Treasury—multiplying the average wholesale gas price by 6 percent, and then rounding up to the nearest one-tenth of one cent. The bill would also limit annual rate increases to the lesser of one cent, 5 percent or the inflation rate, and it would also set a rate minimum (19 cents per gallon) and a rate maximum (32.5 cents per gallon).

While both H.B. 5477 and H.B. 5493 are on the Michigan Senate’s tentative session agenda today,  their fates are uncertain, the Senate could make changes or other proposals, and the legislature is expected to go on a summer break on Thursday. Michigan may push forward with a gas tax increase, and voters may have a say later this year in whether they want the increased fuel tax or to amend the state constitution to raise the sales tax, according to mlive.com, a Michigan newspaper and media company. Or, it could be business as usual with the gas tax staying put for a while longer.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should states increase their gas taxes to pay for transportation infrastructure?

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