Virginia Gas Tax Could be Model for Federal Transportation Tax

Senator Barbara Boxer (D-Calif.), chair of the Senate's Environment and Public Works Committee, suggested last month that Virginia's new funding scheme, particularly the new wholesale sales gas tax, could be a model for a replacement of the federal gas tax.

Nathan Hurst writes that Congress, "look(ing) for creative ways to shore up the Highway Trust Fund" in advance of the expiration of MAP-21 next September, is considering doing just what Boxer suggested by studying Virginia's new law as a possible template to consider.

According to Hurst, the main advantage of the wholesale tax is that it "would solve one of the central problems facing the trust fund by naturally adjusting for inflation."

The per-gallon tax of 18.4 cents for gasoline and 24.4 cents for diesel hasn’t been increased since 1993, so the trust fund’s buying power has steadily eroded with rising prices. Taxing a percentage of wholesale motor fuels costs would boost revenue as prices rise without forcing lawmakers to revisit the question with politically painful votes to raise taxes."

Of course, this assumes that the price of gas increases. Maintaining the excise tax, a path that neighboring Maryland took, would provide a healthy check on revenue should gas prices stabilize or decrease.

In fact, Virginia did away with its statewide 17.5 cents-per-gallon tax at the gas pump entirely, in favor of a new wholesale tax of 3.5 percent on gasoline and 6 percent on diesel, along with an increase in the state’s general sales tax. In the heavily populated Washington suburbs and Tidewater area, motorists pay an extra 2.1 percent sales tax on gas purchases. Drivers of electric [and hybrid] vehicles pay a $64 annual fee.

[Note: The 2.1 percent gasoline sales tax charged in certain northern Virginia suburbs predates the new law which maintained and expanded its reach. Chelyen Davis of The Free Lance-Star explains:

Drivers in Northern Virginia localities—including Spotsylvania, Stafford and Fredericksburg—already pay an extra 2.1 percent in gas tax for local roads, and the new law levies the additional 2.1 percent in Hampton Roads localities.

Furthermore, shoppers in these areas saw the general sales tax rise to 6 percent as opposed to 5.3 percent elsewhere when the new tax system was implemented on July 1, according to Davis.]

As noted above, Maryland maintained its 23.5-cent gas tax, adjusted it for inflation, and added a new wholesale gasoline sales tax, initially set at 1 percent and increasing to 2 percent in 2015.

However, it should be recognized that Virginia's new tax scheme is successful in that it raises more revenue than the 17.5-cent gas tax it replaced.

Sean T. Connaughton, Virginia’s Transportation secretary, says the wholesale tax should provide more long-term stability than the cents-per-gallon tax that it replaced.

“We were able to show our legislature that we weren’t going to have enough money, even for federal matches, by 2017,” he said.

Of course, applying the complex new tax scheme was no easy matter, as Davis writes.

“It’s the most convoluted thing you’ve ever seen,” said Virginia Petroleum, Convenience and Grocery Association president Michael O’Connor, adding that the tax change [effective July 1] has prompted more calls and questions from gas station owners than he’s seen in his 13 years at VPCGA.

Va. Gov. Bob McDonnell and the state legislature, like President Obama and Congress, were unwilling to raise an existing tax - so he came up with a complex alternative that raises more revenue than the current tax which hadn't been raised since 1986. While that may not be the best model to follow, it does present an attractive alternative to legislators trying so desperately to avoid a straightforward gas tax increase not done in 20 years, a path followed since the federal gas tax was first applied in 1932.

An alternative path would be to consider the proposal by Rep. Peter DeFazio (D-Ore.) to index the current 18.4-cent gas tax for inflation. Applying the index would mean that, at least initially, Congress could claim that they haven't increased a tax.