California May Lower Gas Tax by 2.2 Cents Per Gallon

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Gas pump. Photo credit: Alexander Nguyen

The state Board of Equalization will meet in Culver City Tuesday to consider lowering the excise tax rate for gasoline by 2.2 cents per gallon.

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If adopted, the excise tax rate on gas will be 27.8 cents per gallon from July 1 through June 30, 2017. The current excise tax rate of 30 cents per gallon would remain in effect until June 30.

“Californians overpaid gas tax last year due to a bizarre and complex formula that most people don’t understand,” said BOE Vice Chair George Runner. “When prices fall we must lower the rate to ensure fairness. The cut will be a welcome and much-deserved tax break for Californians, who currently pay more taxes at the pump than drivers in other states.”

California drivers pay two types of state taxes on gas: sales tax, which is a percentage of the price, and a per-gallon excise tax.

Before the so-called “fuel tax swap” took effect in 2010, drivers paid the full sales tax rate — then 8.25 percent — and an excise tax rate of 18 cents per gallon.

The fuel tax swap lowered the sales tax rate on gasoline to 2.25 percent and requires the BOE to set a per-gallon excise tax rate annually before March 1. The excise tax rate is calculated so that drivers still pay the same amount in overall taxes at the pump as they would have paid before the swap.

In the 2014-15 fiscal year, the BOE collected nearly $5.4 billion in excise tax for the state’s Motor Vehicle Fuel Account, which helps pay for highways, roads and other public transportation projects.

The sales tax on gasoline also helps fund a variety of state and local road programs.

“In addition to tax relief, Californians need a clear tax system that’s easy to understand,” Runner said. “The current gas tax formula is a convoluted scheme enacted by the governor and Legislature in 2010. ”

“The lack of transparency continues to erode public confidence,” he said. “The public deserves to know how much tax is being collected and how it’s being spent.”

The excise tax rate takes into account a number of factors, including forecast gas price, forecast amount of gallons sold, sales tax revenue that would have been collected prior to the fuel tax swap, and tax revenue over- or under-collected in the prior fiscal year.

The rate ensures that over a three-year period, motorists do not pay more or less in overall gas taxes than they would have prior to the swap.

— City News Service

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