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Congressional Inaction Will Trigger Virginia Gas Tax Increase

Virginia's new 3.5% wholesales sales tax on motor vehicle fuels is set to increase to 5.1% on Jan.1, not because Congress failed to raise the two-decades-old federal gas tax but for something entirely unrelated to transportation: online sales taxes.
December 1, 2014, 5am PST | Irvin Dawid
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In an interesting move by the state legislature last year, a "fail safe measure" was added to then-Gov. Bob McDonell's landmark transportation funding bill that eliminated the state's 17.5-cent gasoline excise tax, increased the general sales tax, added a new wholesale fuel sales tax, and implemented a new $64 registration fee on hybrids and electric vehicles which has since been eliminated.

The bill was hailed by Sen. Barbara Boxer (D-Calif.), chairman of the committee charged with writing the new surface transportation bill, as setting a precedent for what the federal government should do to fix the ailing Highway Transportation Fund.

The fail-safe measure was the requirement for Congress to pass the Marketplace Fairness Act to help Virginia retailers "compete with online sellers who keep their prices low by not charging customers sales tax," writes Jenna Portnoy who covers Virginia politics for The Washington Post. And it needed to pass this year. 

The act "grants states the authority to compel online and catalog retailers ('remote sellers'), no matter where they are located, to collect sales tax at the time of a transaction - exactly like local retailers are already required to do," according to the bill's information webpage. See also the bill itself, S.336 - Marketplace Fairness Act of 2013.

"The (state) transportation bill passed by the General Assembly in February earmarks a share of future online sales tax revenue toward (road and transit) projects," wrote Ben Pershing of The Washington Post in May. However, if Congress failed to pass the Marketplace Fairness Act, the wholesale fuel sales tax would increase to 5.1 percent.

What's holding up Congress? "The U.S. Senate passed Marketplace Fairness in May 2013, with ‘yes’ votes from (Virginia) Sens. Mark R. Warner and Timothy M. Kaine [both Democrats]," notes Portnoy.

Making the case to Congress for passing the bill was "U.S. Rep. Robert W. Goodlatte (R-Va.), chairman of the House committee where the bill languishes," writes Portnoy, "(He) said many lawmakers, including House Speaker John Boehner (R-Ohio), 'have serious concerns' about the online sales tax bill and do not believe this legislation is the answer.'"

Maryland included a similar trigger in a major transportation funding bill passed last year, but it does not kick in until December 2015. If Congress has not passed the Marketplace Fairness Act by that point, the [wholesale] sales tax on gas in Maryland will go up by another 2 cents over the following two years.

Portnoy goes on to write about the state's new transportation funding law, noting that "a report from the Commonwealth Institute for Fiscal Analysis [PDF] published in April 2013 called the scheme 'a failed bet' that is likely to reduce the state’s overall investment in transportation." Presumably Sen. Boxer had not seen that report.

Of course, with the plummeting price of gas, will the increase in the wholesale fuels tax even be noticed?

According to the WDBJ News report on January's likely gas tax increase [2:36 minutes video without accompanying text], the average price of gasoline on Nov. 21 in the Old Dominion State was $2.69 per gallon. That's a dollar less than the average U.S. gasoline in price at the end of June of $3.68, according to The Wall Street Journal.

If the additional wholesale tax is passed on to consumers, gas prices could rise by a nickel, states news reporter Joe Dashiell. That is, unless oil prices continue to fall, which seems like a pretty good bet.

[Hat tip Politico Morning Transportation's Heather Caygle]

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Published on Thursday, November 27, 2014 in The Washington Post
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