Utah's New Years Day Surprise: Nickel Gas and Diesel Tax Increase

The fuel tax increases in the Beehive State by 4.9 cents on Friday. But don't count on gas prices increasing. Not only are prices dropping due to plummeting crude oil prices, but service station owners may be reluctant to pass on the increase.

December 31, 2015, 11am PST | Irvin Dawid

Whether gas prices increase by 4.9 cents a gallon on Friday is clearly uncertain, but here's what's certain - revenue to the state, county and city transportation budgets will increase. "The State Tax Commission estimates it will generate about $76 million a year, with 70 percent going to the state for highways and 30 percent to cities and counties for local roads," writes Lee Davidson for The Salt Lake Tribune.

Coincidentally, this is the same amount the gas tax will be increase in Washington state on New Years Day—the second part of the 11.9-cent gas tax increase signed by Gov. Jay Inslee (D) on July 15.

Unlike Washington, Utah has a Republican legislature and governor (Gary Herbert).

As with other states (see Spokesman Review on seven-cent tax increase in Washington on August 1), the decision to pass on the additional charge is left to the service station.

"I would imagine that it's almost going to be on a retailer-by-retailer basis," said Dave Davis, president of the Utah Food Industry Association, which represents many large grocery chains that operate gasoline stations.[...] "It is such a price-sensitive market that oftentimes people are looking around to see what is happening in the market and will adjust prices" based on what their neighbors do."

The gas tax increase, the first since 1997, resulted from a landmark legislative compromise described by Davidson in a March post: After "raising the gas tax by about 5 cents a gallon on Jan. 1, 2016," wrote Davidson, it would convert it to a wholesale fuel sales tax."

The compromise adopts a House proposal to convert the current [24.5 (PDF)] cents-per-gallon gas tax into a system similar to a sales tax. That allows the tax collected at the pump to increase automatically when gas prices rise.

In his current piece, Davidson describes in more detail the state's gas tax increase history and details how the wholesale fuel sales tax works. Carlos Braceras, executive director of the Utah Department of Transportation (UDOT) indicates where state revenue goes.

Not the only transportation tax to take effect on January 1

Davidson reminds readers that In the ten counties that passed Prop 1, a quarter cent transportation sales tax measure takes effect on Friday as well.

In Davis, Weber and Tooele counties, 60 percent of the new tax money goes to cities and counties — but 40 percent goes to the Utah Transit Authority. In rural areas without a transit district, 40 percent will go to cities and 60 percent to counties.

Prop 1 passed in Carbon, Davis, Duchesne, Rich, San Juan, Sanpete, Sevier, Grand, Tooele and Weber counties. It failed in Salt Lake, Beaver, Box Elder, Juab, Morgan, Uintah and Utah counties.

The last state gas tax increase to take effect was in Washington on August 1 (seven cents of the 11.9-cent tax), the ninth state to pass a fuel tax increase in 2015. Eight are listed in that post—the ninth is listed in 'comments'.]

Interestingly, Utah was one of the three states described in a January post, "Three States Hope to Take Advantage of Low Gas Prices to Boost Gas Taxes." Iowa passed a 10-cent increase in February and Michigan was the tenth and final state to boost its gas tax this year: a 7.3-cent increase in November that takes effect in 2017.

With gas prices projected to remain low through 2016, perhaps other states will muster the political will to take advantage of these historic low prices to pass gas taxes next year. While the additional tax may or may not show-up at the pump, as described above, there will be no uncertainty about the additional revenue for state and local transportation budgets.

Full Story:

Gas tax hike of 4.9 cents per gallon hits Friday

Published on Monday, December 28, 2015 in The Salt Lake Tribune