Seven States Pass Major Gas Tax Increases in 2017

Non-election years are a popular time to raise new revenue for transportation infrastructure investments. This year has continued that trend as seven states — California, Indiana, Montana, Tennessee, South Carolina, Oregon, and West Virginia — have passed substantial road funding measures in 2017.

The main component of all of the measures is a major increase in fuel taxes, ranging from 3.5 to 12 cents. The remarkable thing about this year's crop of transportation funding measures is the similarity found in the legislative components. In addition to the raises in fuel tax rates, each state included increases in vehicle registration fees and all but one implemented new annual fees for electric vehicles, ranging from $100 to $150 (the Montana legislature originally passed an electric vehicle fee, but the governor vetoed it). State lawmakers have appeared to settle on a similar package of user-fee revenue raisers that Republicans, who dominate most statehouses today, can embrace.

Below we detail the main components of all the state transportation funding laws. In addition to the seven states listed below, Utah passed legislation (UT SB 276) this year to slightly modify the state's variable-rate gas tax, which should raise an additional 0.6-cent per gallon in 2019 and 1.2-cents per gallon in 2020.

California Enacts 12-cents-per-gallon Gas Tax Increase

California Governor Jerry Brown (D) finally got a huge transportation funding package — $52.4 billion over ten years — through the legislature. Citing 23 years without a gas tax increase, California had failed to pass a major transportation funding measure during previous legislative sessions, but the governor signed the Road Repair and Accountability Act of 2017 into law on April 28.

In a dramatic vote the night of April 6, the California State Assembly passed the measure (CA SB 1) with the required two-thirds super-majority and no votes to spare. In California, tax increases require a super-majority in the legislature, and SB 1 garnered a 27-11 vote in the Senate and 54-26 in the Assembly. Despite accomplishing this political feat, Brown and Democratic leaders in the legislature are being scrutinized for doling out $1 billion in district-specific transportation spending to convince on-the-fence lawmakers to vote for the bill.

Here's how the Road Repair and Accountability Act of 2017 will raise $52.4 billion over ten years:

• $24.4 billion: Increasing the state gasoline tax by 12-cents per gallon (starting November 1, 2017).
• $16.3 billion: Establishing a new annual “transportation improvement fee” (starting January 1, 2018).
•     $25 a year for vehicles worth less than $5,000.
  • • • $50 a year for vehicles worth $5,000 and $24,999.
      • $100 a year for vehicles worth between $25,000 and $34,999.
      • $150 a year for vehicles worth between $35,000 and $59,999
      • $175 a year for vehicles worth more than $60,000.
    • $7.3 billion: Increasing the state diesel fuel tax by 20-cents per gallon (starting November 1, 2017).
    • $3.5 billion: Increasing the state diesel fuel sales tax by an additional 4 percent increase (up to 5.75 percent) (starting November 1, 2017).
    • $200 million: Establishing a new $100 annual "road improvement fee" for electric vehicles (for the model year 2020 or later).
    • $706 million: Transferring money from the general fund for loan repayments.
    • The new taxes and fees will be adjusted for inflation annually (starting in 2020 via an index to the consumer price index).
  Overall, the legislation is expected to raise $5.2 billion a year for infrastructure investments in the state and cost the average California driver about $10 per month.
  
  Republican Assemblymember Travis Allen has already filed a ballot measure to repeal CA SB 1's scheduled gas tax increases. To get his repeal effort on the November ballot, Allen will need to collect 365,880 signatures from registered California voters.
  

  Indiana Enacts 10-cents per gallon Gas Tax Increase

  In the early morning hours of April 22, the Indiana General Assembly passed a long-awaited transportation funding bill (IN HB 1002) that is expected to raise an additional $6.4 billion over the next seven years to build and maintain the state's roads and bridges. The legislation passed quickly on the last day of session after House and Senate leaders announced they had reached a deal on a transportation funding package. Governor Eric Holcomb (R) signed HB 1002 into law on April 27.
  The last time Indiana raised the state's fuel tax was in 2003 when the legislature raised the rate 3-cents to 18-cents-per-gallon.
  
  As aspects of the legislation are implemented over the next seven years, the state will gradually ramp up new revenues that it will invest in the state's transportation infrastructure. New revenues will rise to $1.8 billion in annual revenue by 2024 and should add $617 million to road funding in 2018 alone. On average, the legislation will raise close to the $1.2 billion per year for additional state and local road funding needs.
  
  Here's how the legislation is expected to raise $6.4 billion in new revenue over the next seven years:
  
  • Increasing the motor fuel tax 10-cents per gallon (starting July 1, 2017).
  • Indexing the motor fuel tax to inflation for the next seven years with a cap of 1-cent increase per year.
  • Establishing a new $50 annual “infrastructure improvement fee” for hybrid vehicle registration and $150 for electric vehicles.
  • Establishing a new $15 annual “infrastructure improvement fee” and increasing registration fees by 25 percent for trucks over 26,000 pounds.
  • Gradually shifting sales tax on gasoline purchases from the General Fund to the State Highway Fund (starting in 2022).
  The legislation also directs the state transportation department to study tolling and submit a waiver to the federal government to allow tolling of existing interstates. Currently, states are banned from tolling existing interstate highways outside a few exceptions.
  

  Montana Enacts 6-cents per gallon Gas Tax Increase

  The Montana Legislature passed a series of bills on April 22 to raise additional revenue for transportation infrastructure. The key aspect of the legislative package was a bill increasing fuel taxes in the state (MT HB 473), which Governor Steve Bullock (D) signed on May 3.
  
  Here's how these tax increases are expected to raise $31.6 million in new transportation revenues each year:
  
  • Increasing the state gasoline tax rate by 4.5-cents per gallon on July 1 and gradually increasing the rate to a total of 6-cents per gallon by 2023.
  • Phasing in a state special fuel tax increase of 2-cents per gallon.
  Separately, the legislature passed two companion bills that add additional fees. Governor Bullock vetoed one bill (MT HB 205), which contained a new $95 annual registration fee for electric vehicles, but on May 11 he signed the other companion bill (MT HB 650) into law, which includes:
  
  • Establishing a 3 percent administrative fee for Department of Motor Vehicle transactions.
  • Establishing new fees on light vehicles and motor homes valued at over $150,000. The fee ranges from 1 to 0.8 percent on the vehicles’ market sale retail price depending on the age of the vehicle.

  Tennessee Enacts 6-cents per gallon Gas Tax Increase

  On April 24, the Tennessee General Assembly passed the Improving Manufacturing, Public Roads and Opportunities for a Vibrant Economy (IMPROVE) Act (TN HB 534).
  
  Here's how the IMPROVE Act will raise an estimated $350 million in new revenue annually:
  
  • Increasing the state gasoline tax by 4-cents per gallon on July 1 followed by additional 1-cent increases in July 2018 and 2019 for a total rate increase of 6-cents per gallon.
  • Increasing the state diesel tax by 4-cents per gallon on July 1 followed by additional 3-cent increases in July 2018 and 2019 for a total rate increase of 10-cents per gallon.
  • Establishing a new $100 annual fee for electric vehicles.
  • Increasing fees on alternative fuel.
  • Increasing vehicle registration fees by $5 for most vehicles, $10 for vehicles for hire, and $20 for trucks.
  The IMPROVE Act also allows localities to ask voters to approve "a surcharge on their local privilege taxes to be dedicated to public transit projects."
  
  Governor Bill Haslam (R) signed the IMPROVE Act into law on April 26. Because the IMPROVE Act gradually implements its revenue-raising gas tax increase over the next few years, the governor has included in his budget proposal an additional $55 million to fund transportation as a down payment on the IMPROVE Act.
  

  South Carolina Enacts 12-cents per gallon Gas Tax Increase

  A day after Governor Henry McMaster (R) vetoed a transportation funding package in South Carolina, the legislature overrode his veto and enacted the legislation (SC HB 3516) into law this May. The Infrastructure and Economic Development Reform Act is expected to raise $640 million a year in new revenue for roads and bridges in the state and includes an increase in the gas tax that will total 12-cents per gallon over six years.
  
  Here's how the Infrastructure and Economic Development Reform Act will raise $640 million in new revenue each year:
  
  • Increasing the state gasoline tax rate by 2-cents per gallon on July 1 and by an additional 2-cents annually until 2022 (a total increase of 12-cents, which will eventually raise the rate to 28.75-cents per gallon).
  • Increasing biennial vehicle registration fees by $16 (starting January 1, 2018).
  • Replacing the current $300 sales tax on motor vehicles with an "infrastructure maintenance fee" of 5 percent of the purchase price, capped at $500.
  • Establishing a new fee of $250 when transferring vehicle registration from another state.
  • Establishing a new $120 "road use fee" for electric or hydrogen-fueled vehicles and $60 for hybrid vehicles (starting January 1, 2018).
  • Establishing a fee on out-of-state commercial trucks that is based on the number of miles driven within South Carolina.
  Lawmakers sought to offset the tax and fee increases with a number of tax credits. Finally, the bill includes several reforms to the state's department of transportation.
  

  Oregon Enacts 10-cents per gallon Gas Tax Increase

  In July, Oregon passed legislation (OR HR 2017) to raise new revenue for transportation infrastructure in the state, which is expected to raise $5.3 billion over 10 years. A key feature of the legislation is a 10-cent increase in the state's gas tax phased in over eight years.
  
  • Increasing the state gasoline tax rate by 4-cents per gallon in 2018 followed by 2-cent annual increases through 2024 (a total increase of 10-cents per gallon).
  • Increasing vehicle registration and title fees by establishing an additional, flat $13 surcharge in 2018, and creating a tiered system for subsequent increases based on fuel efficiency.
  • Establishing a 0.5 percent tax on the retail sale of new motor vehicles purchased in Oregon, and an identical use tax on vehicles purchased outside of Oregon for use in-state.
  • Establishing a 0.1 percent payroll tax to generate between $110 million and $115 million annually for mass transit.
  • Establishing a $15 tax on the purchase of bicycles worth $200 or more.

  West Virginia Tweaks Gas Tax Formula for increase of about 3.5 cents per gallon

  Legislation signed by Governor Jim Justice (D) (WV SB 1006) tweaks the state's gas tax formula and increases fees:
  
  • Raising the floor price of the state's variable-rate gas tax 70-cents ($2.34 per gallon to $3.04). The resulting calculation would ensure that the variable-rate tax would never be less than 15.2 cents-per-gallon (as of Jan. 1, the tax has been charged as 11.7 cents-per-gallon).
  • Increasing annual vehicle fees and the tax on sales of motor vehicles (from 5 percent to 6 percent).
  • Establishing new fees for alternative-fuel ($200 for hydrogen or natural gas vehicles), hybrid ($100), and electric vehicles ($200).