Trend Watch: Swapping Gasoline Excise Taxes for Wholesale Sales Taxes

Tim Craig writes two articles - before and after the Council of the District of Columbia's vote on Mayor Vincent C. Gray’s $12.1 billion, 2014 budget proposal that includes the tax swap - which D.C. Council Chairman Phil Mendelson described as "revenue-neutral”.

“The motorist should see no change,” Mendelson said. “We are not raising the tax. We are changing the implementation of the tax.”

The purpose of the swap is "to better insulate city highway funds from market volatility associated with more fuel-efficient vehicles and decreased demand when prices spike," Mendelson (D) said in an interview.

Craig notes that the swap "would shift the onus of paying fuel taxes from consumers to businesses. But fuel distributors would almost certainly pass those costs on to customers."

While wholesale fuel taxes are not new - the idea of using them in lieu of excise (per gallon) taxes is clearly a trend in the Capital Region, begun this year in Virginia - not by Gov. Bob McDonnell whose proposed plan eliminated the 17.5-cent excise tax for a general sales tax increase, but by the legislature that inserted the 3.5% wholesale fuel sales tax while lowering the general sales tax increase. Likewise, in neighboring Maryland, Gov. Martin O'Malley had initially called for reducing the 23.5-cent excise tax by a nickel, indexing it for inflation, and adding a 4% wholesale fuel tax. The legislature nixed the nickel decrease and lowered the wholesale fuel tax.

Outside the Capital Region, Vermont's May 1 gas tax is "a net increase of 5.9 cents per gallon that includes a new 2 percent assessment on the price of gas, while the per-gallon tax decreases by 0.8 cents" as reported here.

Of interest to district residents, "the council is also considering raising Circulator bus fares from $1 to $1.50 for Smartcard users, and $2 for users without the card, to fund a major expansion of the system."

According to The Examiner's transportation staff writer, Liz Essley, the effect of the gas tax swap will be to "ensure that Virginia remains the place to go for Washington-area drivers seeking a cheap fill-up, transportation experts say." One need not be an expert to recognize that 8.3% is greater than 3.5%, though.

Essley writes that "the D.C. Council is expected to vote again on the measure in June."

California also did a revenue-neutral gas tax swap in 2010 as described here - but in reverse of the new trend. It initially eliminated the state sales tax on fuel for an equal increase in the state fuel excise tax that, for arcane reasons, helped the legislature to balance the budget that year.