- 1 comment
The Gas Tax
The gas tax. Everyone’s been talking about it, but still many people don’t really know what’s up. Here’s a quick synopsis of the issue, the tax, and what it means for you.
- Starting January 1st, 2016, the gas tax will change from a flat tax to a percentage. In particular, the tax will be 12% of the rack (wholesale, pre-tax) price of gas (5 cents). In effect, this will be a 5 cent increase. Also, any increase in the gas prices seen today is due to market fluctuations, not the gas tax.
- Once the average rack price of gas reaches $2.45, the gas tax percentage will remain at 12%, but the Sales Tax Commission will adjust the minimum average rack rate by the percentage increase in average minimum rack price of gas (from 2016 to 2019, the average rate will be based on the year before. After 2019, the average rate will be based on a three year average).
Example: The average minimum gas prices increase from $2.45 to $2.50 in a year. The Sales Tax Commission would then set the rate at $2.50 and apply the 12 % tax rate. The Gas tax would increase from 29.5 cents to 30 cents.
- As of today, the rack rate is approximately $1.73, and the rack rate is not expected to reach $2.45 for 6-10 years.
- The Gas Tax is capped at 40 cents, and cannot drop below 29.4 cents.
- Cities have the option to impose a sales tax on gasoline of ¼ of a cent if they so choose.
What happened during the session?
Plain and simple, the gas tax problem needed a legislative solution but the House and Senate had different ideas about how to go about it. The Senate wanted to increase the flat tax to give state and local agencies a predictable revenue source that would be guaranteed to cover the shortfall. The tax would increase by 10 cents over the course of the next 5 years until it reached 33 cents a gallon.
The House, by contrast, wanted to convert the tax into a percentage so as to keep the tax tied to the fluctuating price of gas and avoid any tax increase while the price of gas remains low. The discussion was vigorous and the negotiations went down to the wire. But, in the end, HB362 squeaked by both houses in the last minutes of the session.
Why was the gas tax needed?
In Utah, we have always had a flat tax on gas. Since 1997, this tax has remained at the price of 24.5 cents for every gallon. The good thing about flat taxes is that if consumption increases, revenues increase. The bad thing is that if consumption plateaus or drops, revenues drop. Despite our population growth, consumption of gas in Utah has not increased noticeably since 1997 due to improved fuel efficiency vehicles. In addition, the tax has not kept pace with inflation. So, while the price of inputs needed for our infrastructure (construction materials for instance) has increased over time, the revenue source has not. Think of it this way, it’s like trying to pay your current bills making minimum wage 15 years ago. This trend has put our transportation situation in a bad position, creating a massive $8-11 billion dollar shortfall in the long run. (To put this in perspective, recall that our yearly budget is approximately $14 billion a year).
Hopefully that clears up some of the confusion.
What are your thoughts? Do you want a rundown on any other issue? Let us know by commenting below.