North Carolina cutting fuel tax rate as prelude to tax increase?

By Keith Goble, Land Line state legislative editor | 2/24/2015

An effort on the move at the North Carolina statehouse would halt a decline in the state’s fuel tax rate in exchange for a tax increase to raise $1.2 billion over the next four years.

The state’s per-gallon rate now is 37.5 cents. The fuel tax is composed of a flat rate and a wholesale component. It is adjusted twice annually based on wholesale prices, which have plunged in recent months.

State estimates show the tax rate is expected to drop at least 2.5 cents per gallon this summer. As a result, the state is anticipated to lose $33 million in the current fiscal year for road and bridge work.

The Senate voted 35-15 to advance a bill to the House that would make sure this will be the last time the tax rate falls. S20 would set a 35-cent-per-gallon floor for the state’s fuel tax.

Sen. Phil Berger, R-Rockingham, said the change would provide “funding stability” for the state Department of Transportation.

“This balanced plan provides tax relief for all North Carolina drivers while helping ensure the state has the long-term resources necessary to build and maintain safe roadways, bridges and economic corridors,” Berger said in a news release.

The tax rate would be frozen through the end of the year. At that time, the tax formula would be altered.

Starting Jan. 1, 2016, the variable component of the tax would be changed from a rate of 7 percent of the average wholesale price of fuel over a six-month period to a rate of 9.9 percent of the average wholesale price of fuel over a 12-month period.

According to a fiscal note attached to the bill, the change will result in the state raising an additional $352 million annually by 2019. At that time it is expected that the state’s fuel tax rate could reach 41 cents per gallon.

Opponents say the public is being sold a bill of goods about fuel tax relief. They point out that the relief plan sunsets at the first of the year and then transitions into a fuel tax increase.

The bill also calls for eliminating 500 full-time jobs at the state DOT. The cuts are intended to help counter the $33 million that would be lost during the pending 2.5-cent fuel tax reduction.

S20 awaits consideration in the House Finance Committee.

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