A common complaint amongst commuters across the country is that roads are in desperate need of repair. Within the past week, four states have taken steps to answer these complaints through legislation that would increase fuel taxes and vehicle registration fees to fund transportation and infrastructure projects.
California Gov. Jerry Brown (D) and state legislators reached an agreement, and S.B. 1 was enacted April 28. “SB 1 will make our roads better and safer and help make commutes shorter. … For too long we have neglected our state and local transportation needs,” said Brown in a press release.
The bill creates the Road Maintenance and Rehabilitation Program, funded in part by a gasoline tax increase of $0.12 per gallon and a diesel tax increase of $0.20 per gallon, which go into effect Nov. 1. Also, it imposes an additional 4 percent excise tax on the sale or use of diesel fuel, bringing the diesel sales tax to 5.75 percent beginning Nov. 1.
Additionally, S.B. 1 enacts new transportation and road improvement fees. The transportation improvement fee will go into effect Jan. 1, 2018, and will require an annual payment based on vehicles’ market value as follows:
$0 - $4,999: $25
$5,000 - $24,999: $50
$25,000 - $34,999: $100
$35,000 - $59,999: $150
$60,000 or more: $175
A $100 road improvement fee will go into effect July 1, 2020, and will be applicable only to zero-emission vehicles with a model year 2020 or later. The fee will be indexed to inflation.
Indiana and Tennessee also enacted legislation to generate more funding to put toward fixing state roads. The following are some of the fuel tax implications of these bills:
Indiana H.B. 1002 :
Provides a fuel tax rate increase of up to $0.10 per gallon for the gasoline tax, special fuel tax and the motor carrier surcharge tax on special fuel that currently stand at $0.18, $0.16 and $0.11, respectively, beginning July 1, 2017.
Annual rate increases beginning in 2018 are limited to $0.01 per gallon through July 1, 2024.
Increases the aviation fuel excise tax from $0.10 to $0.20 beginning July 1, 2017.
Tennessee H.B. 534:
Provides for increases of the gasoline tax: from $0.20 to $0.24 per gallon on July 1, 2017, a $0.01 increase to $0.25 on July 1, 2018, and another $0.01 increase to $0.26 per gallon on July 1, 2019.
Provides for increases of the diesel tax: from $0.17 to $0.21 per gallon on July 1, 2017, a $0.03 increase to $0.24 on July 1, 2018, and another $0.03 increase to $0.27 per gallon on July 1, 2019.
Increases the liquefied gas tax from $0.14 to $0.17 per gallon on July 1, 2017, to $0.19 per gallon on July 1, 2018, and to $0.22 per gallon on July 1, 2019.
Increases the compressed natural gas tax from $0.13 to $0.16 per gallon on July 1, 2017, to $0.18 per gallon on July 1, 2018, and to $0.21 per gallon on July 1, 2019.
South Carolina is also working on legislation to increase state revenue for road rehabilitation. If passed, H.B. 3516 would generate additional revenue beginning July 1, 2017, when the gasoline user tax would increase from $0.16 per gallon to $0.18 per gallon for fiscal year 2017—2018. The tax would continue to increase by $0.02 per gallon for the next six fiscal years for a total increase of $0.12 per gallon. The estimated revenue from the increases will range between approximately $69 million for fiscal year 2017—2018 to $486 million for fiscal year 2022—2023. Currently, both the House and Senate have passed their versions of the bill and is headed back to the House for further approval of Senate amendments.
Montana’s H.B. 473, discussed in an earlier blog post, passed both the House and the Senate and may survive beyond the 2017 regular legislative session’s adjournment. The bill was transmitted to Gov. Steve Bullock (D) on May 1, and he has 10 days to sign or veto the bill. If no action is taken the bill will become effective after the 10—day period.
States may not be the only ones looking to pass infrastructure bills supported by a fuel tax increase. Trump said he would consider a gas tax increase for infrastructure funding in an interview with Mark Niquette from Bloomberg News.
Bloomberg BNA will be watching to see if infrastructure bills become a 2017 state legislative trend for addressing commuter’s rough roads.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Are higher fuel taxes a fair exchange for better highways and local roads?
With a free trial to Premier State Tax Library, practitioners have a single trusted resource that provides all of the tools and information they need to develop and implement the right tax strategies.
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