Guest Editorial: Gas Taxes Set to Evolve
Rising road-repair costs place strain on excise taxes
HOUSTON -- Virginia Governor Bob McDonnell's move earlier this month to drop the state gasoline tax in favor of a redesigned sales tax is a sign of things to come.
While the solutions may differ from state to state, one clear problem exists: Excise taxes, in the cents-per-gallon fee structure that exists in most states, don't account for inflation. As a result, states are falling woefully short of funds needed to maintain roadways and to build new infrastructure.
While excise taxes are generally a fixed, per-gallon fee, sales taxes are typically a percentage of spend and automatically keep up with inflation. In my opinion, the Virginia proposal has positive benefits for the state government, helping its ability to collect enough money to maintain its roads. But, tying infrastructure project funding to dollars that other areas of government compete to get will not solve the problem. In fact, a simpler and more direct solution would be to index fuel excise taxes to inflation, solving the root cause problem.
It is important though to recognize that there are inherent flaws in both approaches: a modified sales tax vs. existing cents-per-gallon gasoline taxes. By way of illustration, take energy-efficient cars. A motorist in an energy-efficient car will drive on the same roads as someone with a less efficient car, applying the same amount of wear and tear on those roads as other motorists. But because he or she is filling up fewer times, that environmentally conscious person is paying less than everyone else, but receiving the same benefit.
In fact, if a goal is for everyone to pay their fair share, this already exists for commercial trucks and tractor trailers. A trucker may fill up in one state and pay the tax there, but may then drive across three or four states before filling up again. Current laws pool the diesel taxes and allow states to share the funds equally.
Some lawmakers recognize the egalitarianism of this approach and want to extend that concept to all drivers. It's called a vehicle-miles-traveled or VMT tax. But VMT has issues with infrastructure build-out for monitoring, technology costs and privacy issues. There are also questions on who would shoulder the burden of costs, consumers or fuel retailers.
Tests in states like Minnesota, Oregon and Washington have shown positive results in getting people to pay their fair share, but those efforts have yet to gain national momentum and are unlikely to do so as VMT runs the political risk of being framed as a tax increase on the middle class or poor (not a popular approach these days).
Ultimately, there will not be a single solution that will tackle a state's need to maintain its roads. A combined solution of excise taxes indexed to inflation, toll roads, possibly higher vehicle registration fees or even a portion of sales tax allocated to infrastructure maintenance will begin to cover the funding gap needed.
Not to be lost in the discussion is what impact tax changes will have on an already beleaguered retail fuel industry. Any margin erosion at the pump also impacts inside store profits with diminished foot traffic as consumers look for alternative or more efficient modes of travel.
One thing is clear, complexity and fluidity in fuel tax laws--whether direct or indirect--will remain. In some cases, that complexity will only get worse as state lawmakers produce what I like to call "nuanced" laws. One popular approach I've seen applies when retail gas prices surge. In New York, for instance, road and highway taxes are tied to sales, but only up to a certain amount. So when gas spikes at the pump, the law protects consumers from overpaying and creating a massive surplus.
This is just one example of the complexity and resulting confusion these evolving laws present to retailers. It shows why so many retailers have turned to automation of their tax determination and filing processes. Getting tax wrong creates the opportunity for lost margin and fines, fees and penalties that are easily avoided with the right technology.
Do you agree or disagree with Bubba Lange on this issue? Please post your comments below.
Robert "Bubba" Lange, senior vice president of solutions engineering for FuelQuest Inc., has more than 27 years of retail and oil and gas industry experience. Houston-based FuelQuest provides on-demand fuel management, tax automation and compliance solutions for suppliers, distributors, buyers and traders of petroleum products and other energy commodities. Prior to joining FuelQuest, he was an SAP platinum consultant in the downstream IS-OIL group focusing on pricing and taxes. Bubba's career also includes supply chain management and systems positions at Coco-Cola and FMC's Wellhead Equipment division. He can be reached at [email protected].