Fuel tax swap heads to Schwarzenegger

| 3/11/2010

California lawmakers have forwarded a budget bill to Gov. Arnold Schwarzenegger that would swap certain fuel taxes.

Intended to help the state eat into a $20 billion budget deficit, the tax swap approved by the Democratic-led Legislature is modeled after Schwarzenegger’s proposal to change how much truckers and others pay at the fuel pump.

The fuel tax proposal forwarded to the Republican governor’s desk would put an end to collection of a 6 percent sales tax on gasoline. It would be replaced with an additional 17.3 cents per gallon applied on the excise tax. For diesel, the sales tax would increase 1.75 percent while the excise tax would be reduced by 4.4 cents per gallon.

Schwarzenegger has called for completely doing away with the sales tax on fuel purchases. However, his plan would increase the excise tax by 10.8 cents per gallon to 28.8 cents. There also would be annual increases in the excise tax during the next decade.

Initially, state finance officials estimate the switch sought by Schwarzenegger would save consumers about 5 cents per gallon. But that margin would slowly slip away. By 2020, his plan calls for the existing 18-cent-per-gallon tax to increase to 34 cents.

The Owner-Operator Independent Drivers Association was opposed to California’s decision to implement the sales tax on fuel purchases. OOIDA believes taxes on fuel should be on the pump and dedicated specifically to highways.

The changes sought in Sacramento would allow some accounting maneuvers to put more money into the state’s general fund. California law now limits sales tax revenue from fuel purchases to be used solely for transportation improvements – 20 percent of which is dedicated to public transit. Excise tax revenue can be applied to the general fund.

Supporters say the tax exchange approved by lawmakers would free up an estimated $1.1 billion for the general fund through 2011 without a significant hit to the funding level for public transit and road repairs. They also say that consumers would not see a change in the price at the pump.

Joe Rajkovacz, OOIDA’s director of regulatory affairs, said there is a danger for the state relying so heavily on the sales tax collected on diesel to fund transit. He said that while the proposal is “revenue neutral” at current prices it would be a different story as fuel prices increase.

“As the cost of fuel gets more expensive, and there is no reason to believe that it won’t, the percentage artificially inflates. For long-haul truckers, the incentive increases for them to fuel up out of state where they aren’t exposed to the sales tax,” Rajkovacz said.

Republicans oppose the tax swap sought by Democrats. They say that while consumers might not initially pay more at the pump that would eventually change.

Because public transit operations would lose out on sales tax revenue from gas purchases, a provision included in the budget bill – ABx8 6 – calls for cushioning the blow with $400 million in the next fiscal year for transit systems statewide.

To view other legislative activities of interest for California in 2010, click here.

– By Keith Goble, state legislative editor

Editor’s Note: Please share your thoughts with us about the legislation included in this story. Comments may be sent to statelegislativedesk@ooida.com.