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A Guide to Transportation Funding Options

Highway Funding – Taxes

Federal Taxes

Fuel Tax

The federal fuel tax represents almost 90% of the revenues deposited into the Highway Trust Fund of the federal government. The federal government collects a tax of 18.4¢ per gallon of fuel purchased in all 50 states. This amount has remained unchanged since 1993. However, inflation has eroded the purchasing power of that 18.4¢.

Other Taxes

In addition to these taxes on motor fuels, the Federal government also collects taxes on diesel fuel and taxes on truck and truck trailer sales, tires sales, and a heavy vehicle use tax.

State Taxes

Fuel Tax

In addition to the Federal tax on gasoline, each state also levies a tax on gas purchases. The amount collected ranges from a low of $0.04 per gallon in Florida to a high of $0.36 per gallon in Washington. However, many states levy other taxes as well. Some states such as Florida vary the tax rate according to the consumer price index.

Motor fuel excise tax rates, January 1, 2007
State Excise Tax ¢/gallon Additional Tax ¢/gallon Total Tax ¢/gallon Notes
Federal 18.3 0.1 18.4 Leaking underground storage tank (LUST) tax
Alabama 1 16.0 2.0 18.0 Inspection fee
Alaska 8.0 8.0
Arizona 18.0 18.0 2
Arkansas 21.5 21.5
California 18.0 18.0 Sales tax applicable
Colorado 22.0 22.0
Connecticut 25.0 25.0
Delaware 23.0 23.0 Plus 0.5% Gross Receipts Tax 3
Dist. of Columbia 20.0 20.0
Florida 4 4.0 11.3 15.3 Sales tax added to excise 4
Georgia 7.5 7.7 15.2 Sales tax added to excise
Hawaii 1 16.0 16.0 Sales tax applicable
Idaho 25.0 25.0 5
Illinois 1 19.0 1.1 20.1 Sales tax add., env. & LUST fee 2
Indiana 18.0 18.0 Sales tax applicable 2
Iowa 21.0 21.0
Kansas 24.0 24.0
Kentucky 18.3 1.4 19.7 Environmental fee 6, 2
Louisiana 20.0 20.0
Maine 26.8 26.8 3
Maryland 23.5 23.5
Massachusetts 21.0 21.0
Michigan 19.0 19.0 Sales tax applicable
Minnesota 20.0 20.0
Mississippi 18.0 0.4 18.4 Environmental fee
Missouri 17.0 0.55 17.55 Inspection fee
Montana 27.0 27.0
Nebraska 27.1 0.9 28.0 Petroleum fee 3
Nevada 1 24.0 0.805 24.805 Inspection & cleanup fee
New Hampshire 18.0 1.625 19.625 Oil discharge cleanup fee
New Jersey 10.5 4.0 14.50 Petroleum fee
New Mexico 17.0 1.875 18.875 Petroleum loading fee
New York 8.0 16.6 24.6 Sales tax applicable, Petrol. Tax
North Carolina 29.9 0.25 30.15 6 Inspection tax
North Dakota 23.0 23.0
Ohio 28.0 28.0 Plus 3 cents commercial
Oklahoma 16.0 1.0 17.0 Environmental fee
Oregon 1 24.0 24.0
Pennsylvania 12.0 19.2 31.2 Oil franchise tax
Rhode Island 30.0 1 31.0 LUST tax
South Carolina 16.0 16.0
South Dakota 1 22.0 22.0
Tennessee 1 20.0 1.4 21.4 Petroleum Tax & Envir. Fee
Texas 20.0 20.0
Utah 24.5 24.5
Vermont 19.0 1.0 20.0 Petroleum cleanup fee
Virginia 1 17.5 17.5 7
Washington 8 34.0 34.0 0.5% privilege tax
West Virginia 20.5 11.0 31.5 Sales tax added to excise
Wisconsin 29.9 3.0 32.9 3 Petroleum Inspection fee
Wyoming 13.0 1 14.0 License tax

1 Tax rates do not include local option taxes. In AL, 1 to 3 cents; HI, 8.8 to 18.0 cents; IL, 5 cents in Chicago and 6 cents in Cook county (gasoline only); NV, 4.0 to 9.0 cents; OR, 1 to 3 cents; SD and TN, one cent; and VA 2%.
2 Carriers pay an additional surcharge equal to AZ-8 cents, IL-6.3 cents (g) 6.0 cents (d), IN-11 cents, KY-2% (g) 4.7% (d).
3 Portion of the rate is adjustable based on maintenance costs, sales volume, or inflation.
4 Local taxes for gasoline and gasohol vary from 10.2 cents to 18.2 cents. Plus a 2.07 cent per gallon pollution tax.
5 Tax rate is reduced by the percentage of ethanol used in blending (reported rate assumes the max. 10% ethanol).
6 Tax rate is based on the average wholesale price and is adjusted quarterly. The actual rates are: KY, 9%; and NC, 17.5 cents + 7%.
7 Large trucks pay an additional 3.5 cents.
8 Tax rate scheduled to increase to 36 cents on July , 2007.

Source: Compiled by Federation of Tax Administrators from various sources.

Motor Vehicle Tax

Most states tax the purchase price of a motor vehicle, whether new or used. In some states a portion of the revenue is distributed to local governments. In other states, this money is not directly deposited to the transportation fund.

Motor Vehicle Luxury Tax

Additional motor vehicle tax imposed on vehicles over a certain price.

Motor Vehicle Operator's License Tax

Fee imposed for transportation funding when applying for an operator's license.

Special Assessment Districts

Similar to Roadway Impact Frees, special assessment districts are created and a tax levied on the property owners in the district if a project is of substantial and primary benefit to this particular district.

State Sales Tax

Additional sales tax on consumer purchases. The tax is dedicated to a transportation fund, as noted in the table above.

State Sales Tax on Gasoline

Additional sales tax on gasoline purchases. The tax is dedicated to a transportation fund, as noted in the table above.

Tax Increment Financing (TIF)

TIF Examples

Nebraska - Nebraska State Government website

Texas - Texas State Government website

In this approach, a special district is created and improvements are made within the district.  Usually the improvements stimulate private sector development. Before development begins or improvements are made, the tax rate is frozen. The taxes continue to be paid but the difference between the original assessed tax and the tax on assessed value after the improvements (the increment) is deposited into a special account that is used to pay off the bonds that were sold to finance the improvements. This money can also be leveraged for more improvements in the district. Forty-six states authorize TIF.

Transportation Reinvestment Zones (TRZ)

TRZ Examples

Hidalgo County (Texas) Regional Mobility Authority - The Hidalgo Loop (First Texas TRZ) website

PDF document - For best results, view PDF files with the most recent version of Adobe Reader City of El Paso, TX - Resolution to authorize TRZ (11/4/08) [PDF, 3.6M]

Transportation Reinvestment Zones are similar to Development Impact Fees and Tax Increment Financing in that a zone is defined around a project that is expected to increase growth and development in an area. The growth, and the ad valorem tax that it will produce is projected. A percentage of this anticipated tax revenue increase, pre-determined by the implementing entity (such as a county, city or regional mobility authority), is dedicated to pay for the project. Bonds are then issued to finance the project and the dedicated tax revenue is used as the source of repayment for the bonds. Legislation authorizing Transportation Reinvestment Zones was enacted in Texas in 2007.

Underground Storage Tank Tax

Federal tax imposed on the privilege of being a receiver of certain petroleum products such as motor fuel, home heating oil, kerosene and aviation fuel.  This tax is similar to State-imposed Environmental Impact Fees (EIFs).
Note: This tax is in addition to the 0.1¢ levied by the Federal government for the Leaking Underground Storage tank tax (LUST).

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