Extras on Excise: The Roads Might Be Frightful This Holiday Season, But Will Your Gas Taxes Be Comparably Delightful?

The price of gas is dropping, so get ready for holiday visitors as more people hit the road and take advantage of the lower prices. But when prices decrease, does that mean gas taxes decrease, too?

 It depends.  Some states impose a flat excise tax on gas, while others use calculations based on considerations like the price of gas, the Consumer Price Index or the sales tax that cause the gas tax rate to be variable, according to the Institute on Taxation and Economic Policy

For the states whose gas tax varies with the price of gas—like Vermont, New York, Connecticut, Pennsylvania, California and Kentucky, among others—gas taxes could decrease as prices fall. For example, Kentucky’s motor fuel tax rate is set to decrease from its current 30.5 cents per gallon to 26.2 cents per gallon beginning Jan. 1.

But for the states that have a flat gas tax—more than half of them, including the Rocky Mountain states, Pacific Northwest, parts of the Deep South, among a few others—they will not get an excise tax break just by the price falling.

In Hawaii, Indiana, Illinois and Michigan, where ITEP’s map shows that the tax rate is variable only because these states impose general sales tax on gas, drivers may also see tax decreases as prices decline. 

The federal government projects that gasoline prices will continue to slide in 2015, to roughly $2.80 to $3 per gallon, according to the U.S. Energy Information Administration’s Short-Term Energy Outlook.  For all of 2015, the average per-gallon gasoline price is estimated to be $2.94—lower than any of the last three years:

  • In 2012, gas was $3.63 per gallon;
  • In 2013, gas was $3.51 per gallon; and
  • In 2014, gas is estimated to be $3.39 per gallon.

Even a regional breakout shows that gasoline prices are down in every region of the country.

All of this sounds like good news for motorists. But if these price slides continue, will it push states to more quickly enact other means of capturing revenue to fund the road maintenance and improvements that gas taxes have traditionally paid for? Per-mile road usage charges are starting in Oregon this summer, and California is considering a similar program. Perhaps your state will be next.  

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Will falling gas prices cause states to push for other transportation infrastructure funding sources? 

For more information about state tax issues, sign up for a free trial of the Bloomberg BNA Premier State Tax Library.

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