Extras on Excise: July’s Sweltering Temperatures Aren’t the Only Thing Making Fuel Taxpayers Sweat


 Person pumping gas

July, a popular time of year for family vacations and fun in the sun, is also a popular month for fuel modifications due to the start of a new fiscal year. Several state legislatures are raising fuel taxes this year, in some cases for the first time in decades, in order to meet a need for increased state funding of highway improvements, roads, and infrastructure projects. 

We’ve identified the seven states that have changed their fuel taxes this year, and we’re offering a short and sweet explanation to taxpayers so they know what to expect the next time they pull up to the pump.

California

California’s S.B. 1, discussed in an earlier blog post, will be imposing an additional tax on their gasoline and diesel excise taxes, effective Nov. 1, in order to fund their newly created road maintenance and rehabilitation program.

  • The gasoline tax, with an additional tax of $0.12, will increase from $0.297 to $0.417 per gallon.

  • The diesel fuel tax, with an additional tax of $0.20, will increase from $0.16 to $0.36 per gallon.

Indiana

Indiana’s H.B. 1002, also discussed in earlier SALT Talk coverage, increases fuel taxes starting July 1, and the rates will continue going up through 2024. The changes are as follows:

  • The gasoline license tax was changed from $0.18 per gallon to the lesser of the rate determined under Ind. Code Ann. § 6-6-1.6-2 and $0.28 per gallon.

  • The aviation fuel tax increased from $0.10 to $0.20 per gallon. The tax is imposed on the gross retail income received by a retailer on each gallon of aviation fuel purchased in Indiana.

  • The special fuel tax changed from $0.16 to the lesser of the rate determined under Ind. Code Ann. § 6-6-1.6-2 and $0.26 per gallon.

  • The motor carrier surcharge tax changed from $0.11 per gallon to the lesser of the rate determined under Ind. Code Ann. § 6-6-1.6-2 and $0.21 per gallon. The tax is imposed on the motor fuel consumed by a carrier in its operations on Indiana highways.  

Montana

Montana’s H.B. 650 and H.B. 473 raise the excise tax rate on gasoline, but the change will not go into effect until 2018. The increase is the first change in 24 years for Montana. Beginning fiscal year 2018 the gasoline tax rate will jump $0.045 cents from $0.27 to $0.315 and will gradually increase until it reaches $0.33 in 2023. Gas taxes in Montana are imposed on distributors for the privilege of engaging in and carrying on business within the state.  

New Jersey

New Jersey imposes a petroleum products gross receipts tax (PPGRT) upon companies engaged in the refining or distribution, or both, of petroleum products, derived from the sale of those products. A.B. 12, enacted last fall as part of a larger transportation package, amended N.J. Rev. Stat. § 54:15B-3 to increase the tax, the associated highway fuel tax, and it added an additional PPGRT based on the first sale of petroleum products within the state, effective Nov. 1, 2016. However, the PPGRT for diesel fuel, blended fuel containing diesel or that is intended for use as diesel, and kerosene, took effect in multiple stages in 2017, as follows:

  • PPGRT:
    - From Jan. 1, 2017 through June 30, 2017, 8.995 percent of gross receipts, or $0.199 per gallon.
    - Effective July 1, 2017, 12.85 percent of gross receipts, or $0.307 per gallon.
  • Additional PPGRT, based on the first sale of petroleum products within New Jersey:
    - From Nov. 1, 2016 through June 30, 2017, $0.04 per gallon.
    - Effective July 1, 2017, $0.08 per gallon. 

South Carolina

South Carolina’s H.B. 3516 increased the excise tax user fee after more than 20 years. Effective July 1, the fee was increased from $0.16 to $0.18 per gallon and will continue to increase by $0.02 each year until they reach $0.28 in July 2022.   

Tennessee

Tennessee’s H.B. 534 changed several fuel excise taxes, effective July 1.

  • The gasoline tax increased from $0.20 to $0.24 per gallon and will increase by $0.01 July 1 of each year until it reaches $0.26 in 2019.

  • The diesel fuel tax increased from $0.17 to $0.21 per gallon and will increase by $0.03 July 1 of each year until it reaches $0.27 in 2019.

  • The liquified gas tax increased from $0.14 to $0.17 per gallon and will increase gradually on July 1 of each year until it reaches $0.22 in 2019.

  • The compressed natural gas tax increased from $0.13 to $0.16 per gallon and will increase gradually on July 1 of each year until it reaches $0.21 in 2019. 

West Virginia

West Virginia’s S.B. 1006 modified the variable component of the motor fuel tax, effective July 1. The motor fuel excise tax is made up of a flat rate and a variable component based on the average wholesale price of the fuel.

Prior to July 1, the motor fuel tax for gasoline and diesel had a combined rate of $0.322 per gallon:

  • Flat rate of $0.205; and

  • Variable component of $0.117.

Effective July 1, the motor fuel tax increased to a combined rate of $0.357 per gallon:

  • Flat rate of $0.205; and

  • Variable component of $0.152.

In addition to the changes discussed here, more fuel tax changes may be coming as some states tie their fuel tax rates to inflation to keep up with the rising need for general state funding. However, because of lower gas prices, some states, such as Iowa and Nebraska, are lowering their tax rates, as discussed in a recent Institute of Taxation and Economic Policy article. It is important for taxpayers to stay vigilant for any changes to fuel tax rates and fees, especially when the effective dates take place in the middle of the year.

 

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should states adjust their fuel tax rates when the price of motor fuels fluctuates?

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