First State to Drop Gas Tax?

Virginia governor proposes replacing gasoline tax with higher sales tax

Angel Abcede, Senior Editor/Tobacco, CSP

Bob McDonnell

RICHMOND, Va. -- In a move that proponents say will better fund upkeep of Virginia roads and highways, Governor Bob McDonnell last week proposed a five-year, $3.1 billion package that will drop the state's gasoline tax in favor of a bump in sales tax by about a penny on the dollar.

Citing the effects of inflation and greater fuel efficiency in motor vehicles, McDonnell said that the current gasoline tax is no longer a sustainable source of revenue to maintain roads and build new infrastructure.

If lawmakers approve the proposal, Virginia would be the first state to drop its gasoline tax, said officials.

The governor's 2013 Transportation Plan proposes these changes:

  • Eliminate the current 17.5 cents per gallon motor fuels tax on gasoline: The viability of the gasoline tax as the state's primary revenue source for transportation has been eroded by greater vehicle fuel mileage, the introduction of alternative fuel vehicles and the impact of inflation. The motor fuels tax on diesel will remain unchanged because heavy trucks have a disproportionately large impact on the deterioration of Virginia's highways.
  • Replace the current gasoline tax with a 0.8 cent increase to the Sales and Use Tax (SUT) dedicated to transportation: The state already puts 0.5 cents of its sales taxes toward transportation. That revenue grows with the economy, and as a percentage of the price of a product or service, it inherently accounts for inflation, officials said. Under the governor's plan, 85% of the increase will go to the Highway Maintenance and Operations Fund while 15% will go to the Transportation Trust Fund.
  • Dedicate an additional 0.25 cent of the state's portion of the existing SUT to transportation: Transportation currently receives 0.5 cent of the SUT, and the governor proposes to phase in this share to 0.75 cent over five years. When combined with the 0.8 cent SUT increase, transportation will receive approximately one-quarter of SUT proceeds, with all revenue from the additional 0.25 cent will be dedicated to support maintenance and operations.
  • Increase vehicle registration fees by $15 and dedicate the revenue to intercity passenger rail and transit: Growing demand for public transportation is requiring greater state resources.
  • Impose a $100 annual alternative fuel vehicle fee and dedicate the revenues to transit: While a supporter of alternative fuel vehicles, McDonnell said drivers of alternative fuel vehicles that use natural gas or electricity pay no motor fuels tax at the state or federal level and thus do not contribute to the primary means of funding roads. At the same time, these vehicles use the state's roadways just as much as conventional-fuel vehicles.

State officials said the plan that would provide more than $3.1 billion in transportation funding for the Commonwealth over the next five years, "tying transportation funding to economic growth and replacing the state's outdated gas tax revenue model with a 0.8% increase in the state's sales tax dedicated to transportation."

McDonnell said, "My 2013 transportation funding and reform package is intended to address the short- and long-term transportation funding needs of the Commonwealth. Declining funds for infrastructure maintenance, stagnant motor fuels tax revenues, increased demand for transit and passenger rail, and the growing cost of major infrastructure projects necessitate enhancing and restructuring the Commonwealth's transportation program and the way it is funded. We simply cannot continue to do what we have always done and expect this problem to go away."

Unfortunately, retailers across the country will be seeing such legislation cropping up, said Bubba Lange, senior vice president of solution engineering for FuelQuest Inc., Houston. He said the current excise tax model built on cents per gallon fails to take into account inflation and the growing cost of materials and building expenses.

"It's an issue that's not going away," Lange told CSP Daily News. "Our road system is in need of repair, and the only way is with taxes."

Lange said that as ideas such as the Virginia proposal are "bantered around, each state will have its version or some twist. The c-store industry needs to be setting foundation for its IT and automated reporting so it can easily adapt to change."

McDonnell concluded, "Market forces clearly dictate that we have to change how we fund transportation. This is a math problem. The current revenues numbers do not add up to a safe, efficient and sustainable transportation network. The time is now for an innovative and sustainable plan to meet our transportation needs and grow Virginia's economy."

Angel Abcede, CSP/Winsight By Angel Abcede, Senior Editor/Tobacco, CSP
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