Extras on Excise: New Jersey Fuel Taxes Are Going Up in the World

Starting Nov. 1, the tax rate in New Jersey for gas and diesel jumped significantly, thanks to legislation enacted in October that changed the state’s petroleum products gross receipts tax. Petroleum products refiners and distributors had just 17 days to prepare for the tax rate changes, as panelists noted during an Oct. 26 Bloomberg BNA webinar sponsored by Mayer Brown LLP. Now, instead of paying a $0.145 per gallon tax at the pump for gas, consumers are ponying up $0.375 a gallon in state taxes alone when filling up their cars.

In New Jersey, gasoline and diesel taxes have multiple components —a fuel excise tax, a gross receipts tax on petroleum products and an additional tax. The fuel excise tax ($0.105 for gas; $0.135 for diesel) and the additional gas tax ($0.04) were left untouched by the recent legislation. However, the petroleum products gross receipts tax was altered for both gas and diesel.

Bill A. 12, which Gov. Chris Christie (R) signed on Oct. 14, adjusted fuel taxes as part of a larger tax package, which included decreasing the sales and use tax rate and effectively eliminating the estate tax.

The petroleum products gross receipts tax is based as a percentage of gross receipts from the first sale of the products in-state and then converted into a cents-per-gallon rate based on the average retail price per gallon of unleaded gasoline or number 2 diesel, rounded to the nearest tenth.

Prior to Nov. 1, the petroleum products gross receipts tax rate was 2.75 percent (translating into $0.04 per gallon). Now the rate is 12.85 percent. For gasoline, this means the gross receipts tax is $0.23 (rounded up from $0.226). With the excise and additional tax, the total gas tax rate is $0.375 . . . for now. The tax rate will be adjusted quarterly.

This jump in taxes takes New Jersey from having one of the lowest gas tax rates in the U.S. to having one of the highest, according to the Tax Foundation.

The situation is more complicated for diesel.

Instead of a corresponding rate change along with the tax increase on gasoline, on Nov. 1, the diesel tax increase will take place in stages.

On Jan. 1, 2017, the petroleum products gross receipts tax on diesel increases to 8.995 percent; this rate increases again to 12.85 percent on July 1, 2017. The state division of taxation has not yet announced the cents-per-gallon rate. However, it clarified in recent guidance that the tax rate on diesel is not $0 between Nov. 1 and Dec. 31, 2016, before the tax increase takes place—the additional $0.04 tax on diesel is still applicable. 

Also under the new tax system, the additional tax on gasoline is staying the same, while the additional diesel tax rate goes up from $0.04 to $0.08 on July 1.

With these rate changes come new floor stock taxes for the industry. Taxpayers are responsible for recording how much gas and diesel is in their inventory at the close of business the day before the rate changes and paying the difference between the previous tax and new tax rate. Diesel sellers will have to submit two floor stock tax returns and payments—one for each tax increase.

Even New Jerseyans who don’t drive are impacted by these tax increases; Uber is increasing the fare rates by $0.02 per mile to mitigate the costs of the new tax rates for their drivers.

New Jersey isn’t the only state that has seen a gas tax increase in recent years. Nineteen states and D.C. have seen gas tax changes in the past three years, according to the Institute on Taxation and Economic Policy.

On the federal taxation level, there is also a lot of activity. The federal biodiesel mixture credit, biodiesel credit and agri-biodiesel producer credit are all expiring on Dec. 31, as discussed and analyzed during the webinar. It only goes to show that when it comes to fuel taxes, practitioners always need to top off their tank of knowledge.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What do you think the economic consequences of this tax increase are?

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