Extras on Excise: State Legislation Aimed at Pumping Fuel Taxes to Improve Transportation Infrastructure


Highway ConesAs President Donald Trump and federal lawmakers roll out plans to improve infrastructure, state lawmakers appear to agree that states also need to invest more into maintaining and expanding their transportation networks. The catch is how to pay for this vital work. Legislatures in several states have proposed bills to raise motor fuel taxes to fund infrastructure needs critical to trucking, other motorists and the economy. 

Below is a summary of several of these bills:

Hawaii

Last year, Hawaii Gov. David Ige (D) proposed a $0.03 per gallon tax increase for gasoline that was ultimately shut down in the state’s legislature. This year, Ige has proposed S.B. 1012 to increase fuel tax from $0.16 to $0.26 per gallon beginning July 1, 2017. The measure would also increase annual motor vehicle registration fees from $45 to $50 and increase the motor vehicle tax weight by $0.25 a pound for vehicles weighing up to 10,000 pounds. The revenue would be used to maintain the state’s highways. Currently, the bill is pending review by the Senate Committee on Ways and Means.   

Indiana

In Indiana, H.B. 1002 proposes to increase state taxes on fuel by $0.10 per gallon and index fuel tax rates annually for inflation beginning July 1, 2017. Currently, the tax rate for gasoline is $0.18 per gallon, the special fuel tax is $0.16 and the motor carrier surcharge is $0.11. Under the bill, the annual index would be limited to $0.01 per gallon. The bill would also establish a $15 annual registration fee for motor vehicles weighing 26,000 or less and a $150 annual registration fee for electric vehicles. Additionally, alternative fuel decal fees would increase by 50 percent. Revenue collected from this bill would be used to improve state highways. Presently, the bill is being reviewed by the Committee on Tax and Fiscal Policy. 

Montana

Montana’s H.B. 473 would increase taxes for motor fuels for the first time in more than 22 years. The bill would increase taxes from $0.27 to $0.35 per gallon for gasoline and from $0.2775 to $0.35 for special fuel. The revenue would be dispersed to new accounts for highway, bridge and road safety projects, as well as matching funds for local road construction and maintenance. The Montana House of Transportation held an initial hearing on the bill on Feb. 22, 2017. 

New Mexico

The New Mexico Senate approved a measure that would increase the tax on gasoline from $0.17 to $0.27 per gallon and from $0.21 to $0.26 for special fuel beginning July 1, 2017. The bill would also increase the motor vehicle excise tax from 3 percent to 4 percent, set the petroleum products loading fee to $150 per load until state reserves reach 5 percent, and establish the state road maintenance fund. The projected annual revenue from this proposal is $185 million, as reported by Bloomberg BNA reporter William H. Carlile in the Daily Tax Report: State (subscription required). 

Additionally, the New Mexico House of Representatives passed H.B. 63, which would give voters in localities the option to increase their own gas taxes in increments of $0.01 per gallon up to $0.05 for gasoline and special fuel beginning July 1, 2017. Currently, the local option tax of $0.02 per gallon is levied only on gasoline. Local ordinances to impose or increase the fuel tax would require a simple majority vote. The tax is estimated to generate approximately $14 million in new revenue for counties and municipalities (if all localities were to impose a $0.01 tax), which could be used to fund public bridge, highway and other local infrastructure projects. The bill was referred to the Senate Finance Committee on Feb. 7, 2017.

South Carolina

South Carolina’s House of Representatives approved a bill that would increase the fuel tax by $0.10 per gallon over a five-year period. Currently, South Carolina’s fuel tax is $0.1675 per gallon, which has not been raised in 28 years. If the bill is passed, the tax would increase by $0.02 per year beginning July 1, 2017. This measure would also increase the vehicle sales tax from $300 to $500, the biennial vehicle registration fee by $16 and impose a new registration fee for alternative fuel vehicles. Hybrid owners would be subject to an additional registration fee of $60, and electric vehicles would be subject to $120 fee. The bill would also impose the motor carrier user fee on out-of-state commercial carriers. Once the measure takes full effect, revenue is expected to reach $402 million annually, as reported by Bloomberg BNA reporter Andrew M. Ballard in the Daily Tax Report: State. The proceeds would be used for state transportation infrastructure. This bill is now before the Senate for approval.

Other State Measures 

And now for the lightning round. The Arizona Legislature is considering a $0.10 per gallon tax increase on motor fuels. In Alaska, proposed legislation to mitigate the state’s budget crisis would increase taxes on all motor fuels to fund highways, waterways and airport infrastructure. In Tennessee, Gov. Bill Haslam (R) has proposed to increase the gasoline tax by $0.07 and the diesel tax by $0.12. Oregon is in it for the long run; legislation is pending to increase the motor fuel tax by $0.05—in 2023.  And Minnesota may get an extra tax; the legislative version of Gov. Mark Dayton (DFL)’s proposal to create a new 6.5 percent gross receipts tax on motor fuels in addition to pre-existing fuel taxes, S.F. 884, was referred to the Senate Rules and Administration Committee on Feb. 13.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: With several states increasing motor fuel taxes to improve infrastructure and revenue issues, will the federal government decide to raise the federal gas tax? 

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