Eliminate the motor fuel excise tax and replaces income from the tax with an equivalent increase in the state sales tax.

eliminate the motor fuel excise tax and to replace any income from the tax with an equivalent increase in the state sales tax. According to our interpretation, the proposed bill would eliminate the motor fuel excise tax, except for the tax on Aviation Gas, and increase the consumer sales tax rate with the tax attributable to the increased tax rate being dedicated to the State Road Fund. Under current code, the motor fuel excise tax is comprised of a flat rate tax of 20.5 cents per invoiced gallon and a variable rate tax which is 5 percent of the average wholesale price of each motor fuel as determined annually by the State Tax Commissioner. The legislation reduces the motor fuel excise tax to zero for all fuels except for �airline fuel�. The legislation also increases the state consumer sales tax rate to 7.8 percent with collections attributable to the additional 1.8 percent being dedicated to the State Road Fund. The provisions of this bill would shift the burden for maintaining state roads from the road user to the general consumer. Major road users such as the interstate trucking industry and tourists passing through on the interstate highways stand to benefit from the change. Lower user fees could generate increased travel on major state roads by the road users, resulting in additional wear without increased funding to pay for more frequent maintenance. Most state residents and tourists who choose to spend time in the state beyond a short visit would pay higher total taxes. The greatest increase in tax burden would be on those state residents with below average travel on roads. Per our interpretation, there would be a small decline in General Revenue collections due to consumer spending shifts in response to the higher sales tax rate. Based on current projections of motor fuel excise tax collections, the dedicated consumer sales tax would increase State Road Funding by a minimal amount in FY2024, by $23.4 million in FY2025, and by increasing amounts in subsequent fiscal years. Additional administrative costs to the State Tax Department would be $50,000 in FY2024.

Pending Committee action.

01/31/24 Introduced in House. Referred to House Committee on Finance.