Extras on Excise: Lower Gas Prices Mean Lower Gas Taxes in 2016, At Least in Some States


With gas prices at a six-year low, drivers have enjoyed spending less to fill up their vehicles during the 2015 holiday season. And even more good news for drivers in a few states—lower gas taxes starting Jan. 1! However, lower tax rates mean lower revenues for those states, which may affect budgets during the remainder of fiscal year 2015-16. 

Gas prices have declined throughout 2015 and are now hovering around 2009 prices, according to data from the U.S. Energy Information Administration (EIA), at $2.034 and $2.235 per gallon for gasoline and diesel, respectively. For states that link their gas tax rates to the price of gasoline, the price drop means a rate decline. 

New York, North Carolina, Pennsylvania, Vermont and West Virginia will all see small dips in their gas taxes beginning on Jan. 1, 2016: 

  • New York - $0.008 decrease
  • North Carolina - $0.01 decrease
  • Pennsylvania - $0.002 decrease
  • Vermont - $0.0027 decrease
  • West Virginia - $0.014 decrease

Perhaps some of these decreases aren’t that surprising, as New York, Vermont and West Virginia are amongst the top 10 states seeing the largest gas price decline in 2015, according to AAA.

Lower tax rates ultimately mean that states will generate less gas tax revenue than usual, which may strain some state budgets already suffering because of the significant drop in oil prices during 2015. Many states have seen lower sales tax and severance tax revenues because prices have dropped so much, and are now facing budget cuts for the remaining half of the fiscal year. With gas taxes bringing in less revenue to fund transportation projects, states will have to reevaluate where the money will come from to pay for those projects. 

The discussion over the best way to impose gas taxes is not a new one, and many states have been reconsidering their gas tax policies in recent years as gas tax revenues have been unable to keep up with rising transportation infrastructure costs. 

Several states raised their gas taxes last year. Nine states, including Georgia, Idaho, Iowa, Maryland, Nebraska, Rhode Island, South Dakota, Vermont and Washington, all saw rate increases in 2015. 

Five states already have rate increases scheduled for 2016: 

  • Florida - $0.001 increase on Jan. 1 (the state’s gas tax is linked to the consumer price index and not gas prices)
  • Maryland - $0.005 increase on Jan. 1 (another increase may occur on July 1)
  • Nebraska - $0.007 increase on Jan. 1 (2015 legislation increases the tax $0.015 cents each January for the next four years; the rate is also linked to gas prices, which mitigates the Jan. 2016 increase)
  • Utah - $0.049 increase on Jan. 1 (Utah is transitioning to a variable-rate instead of fixed-rate tax; increases will also occur in future years)
  • Washington - $0.049 on July 1 (based on 2015 legislation)

 Federal gas taxes have remained at the same levels since 1993—$0.184 per gallon of gasoline and $0.244 per gallon of diesel, which includes the $0.001 Leaking Underground Storage Tank (LUST) Trust Fund financing rate.

 

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Will the drop in gas prices and gas tax revenues spur more states to consider changing their gas tax system? 

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