States Need Revenue Diesel Fuel & Gas Taxes Going Higher

While states struggle to keep up with increased demand on their highway infrastructure, people buying diesel fuel and gas are going to pay. In the latest news, the state of Virginia has passed a law that goes into effect July 1, 2013 that will raise diesel fuel taxes and gas taxes.

Here is how the new law reads.

Effective July 1 this year, the gasoline tax will be set at 3.5 percent of the average statewide rack price, ex-tax, of unleaded regular, as determined by the Virginia Department of Motor Vehicles and converted by the DMV to a cents-per-gallon figure at the pump or on bulk purchases.

Thereafter, the DMV is to make semiannual adjustments in the tax, according to changes in the price of gasoline, with the changes in tax, if warranted, becoming effective on January 1 and July 1. For this purpose, the average price may not fall below what it was on February 20 this year.

There will be a floor-stocks tax this July. If Congress does not enact legislation before the end of 2014 allowing states to levy sales tax on direct sellers (which would bring Virginia more revenues, but does not seem likely to us), the tax rate on gasoline will rise to 5.1 percent.

Effective July 1, 2013, the tax rate on diesel fuel becomes 6 percent of the average statewide rack price, ex-tax, as determined by the DMV on the same schedule as pertains to gasoline. (The floor on that price too is what it was this February 20.)

The tax on diesel fuel will also be stated as so many cents per gallon, both at the pump and on bulk purchases. In effect, Virginia has indexed its fuel tax rate to the price of fuel, and the rate will always be imposed at so many cents per gallon. Interstate motor carriers using fuel in Virginia will be subject to use tax, collected through the International Fuel Tax Agreement, at the rate in effect when the fuel was used, plus the 3.5 cent surtax. Carriers purchasing fuel in Virginia will receive a full credit on their IFTA returns for the fuel tax they have paid.

Earlier this year, Wyoming also raised its diesel fuel and gas tax, by 10 cents a gallon that will also go into effect July 1, 2013. As we know today, there are more than a dozen states looking to increase diesel fuel taxes and gas taxes. Here is what we know about some of them:

  • Arkansas – Potential for sales and diesel tax increases to be addressed in the 2013 legislative session. How much will be a good question?
  • Vermont – Plan to cut its gas tax by 4.7-cents to 14.3-cents; and apply a 4% sales tax on the retail price of gas with state and federal taxes not being included in that sales tax equation.
  • Washington – Proposal to raise the 37.5 –cent tax on fuels (gas and diesel) by a total of 10-cents over the next 5 years. The plan would be to do 2-cent increases each year. Another provision in the plan would increase the state’s hazardous substance fee from .7% to 1.0%.
  • Wisconsin – Recommendation was made to increase the diesel and gas by 5-cents per gallon.
  • Connecticut- The Petroleum Products Gross Earnings Tax will go from 7.0% to 8.1% for gas only (.088140) on July 1, 2013.
  • Iowa – Looking at an increase of fuel taxes by as much as 10-cents. This will most likely be dealt with during the 2013 legislature session.
  • Iowa – Bill was signed by the governor that requires 25% of all fuel burned in the state be renewable by 2020.
  • Senate committee cleared a bill that would increase the state sales tax from 5.3 to 5.6% beginning Jan. 2013; and most vehicle registration fees by $20 and largest trucks by as much as $135 by 2014.
  • Kansas – Effective Jan. 2014 the property tax on tractors will be replaced with a new fee based on truck weight. It will be tied closer to the IRP; and a fee paid each year. It will apply to out-of-state fleets as well.
  • Louisiana – Push for a 10-cent gallon increase for new roads and repairs. If lawmakers passed the proposal for an increase in fuel and registration; it would go to the voters for approval. Also, this proposal would tie future fuel increases to the CPI.
  • Maryland – Funding plan has been introduced that will reduce the gas tax only by 5-cents; and add a sales tax on the final gas/diessel sales by 2% in 2013; and 4% in 2014. In addition, it allows for indexing gas and diesel taxes to the CPI.
  • Massachusetts – DOT report indicates increases needed to meet highway repair and public transit needs. The primary options spelled out included: increase in sales tax from 6.25 to 7.75%; or income tax from 5.25 to 5.66%; along with increases in cost of car and truck registrations.
  • Michigan – Governor proposed raising the gas and diesel tax to .33 ppg; with indexing to go into effect in 2016. Another proposal is to add 2% to the existing 6% sales tax; and potentially expand it to tax services and eliminate fuel taxes or income taxes.
  • Minnesota – Bill introduced that would raise fuel taxes by 9.5-cents as part of the Transportation Bill. License fees, taxing more auto parts and services and other means of raising funds as being looked at.
  • Missouri – Proposition to freeze the state’s 17-cent tax and ban tolling; in exchange for adding a 1% to the existing 4.225% sales tax.
  • Nebraska – LB531 has been introduced that would repeal the 2011 law that requires ¼ of 1% of the Nebraska’s 5.5% sales tax to be used to pay for county and state road projects. This and other proposals are being reviewed in a tax commission study.
  • New Hampshire – NH House has approved a 15-cent increase to be phases in over 4 years for gas; and 6 years for diesel.
  • Oklahoma – There is a 1-cent assessment on the wholesale purchase of gas and diesel that will cover the primary cost to build 9 new weigh stations in the state.
  • Pennsylvania – Proposal to raise the Wholesalers Oil franchise fee by 28.5-cents over the next 5 years; and reduce the gas and diesel tax by 2-cents over the next 2 years.

We fully understand that fuel taxes must increase to keep up with the road and bridge infrastructure. As long as the actual fuel tax money goes to that, then it should work out for everyone. Smoother, wider, safer roads with less congestion, less delays. More work being done on the infrastructure, means more jobs and more jobs mean more tax payers and then we have an economy growing instead of just sort of sitting still.

What I think this should mean to all companies, is now more than ever, your fleet managers are going to need help with fleet management on the side of fleet fueling. The economy is still slowly turning around but increase costs will hurt everyone short term.

To try and keep a lid on your diesel fuel prices, you need to have a fuel department. Let Sokolis Group be your fuel department and do your fuel management, strategic sourcing and overall diesel fuel savings!

Contact us now to help get started 267-482-6159 or Cproud@sokolisgroup.com.