Gas prices might affect tax collections

Gas prices might affect tax collections  

Publication: Charleston Daily Mail
Release Date: 05/27/08
Contact: Justin D. Anderson

Overall fuel tax revenues for West Virginia have been growing at a steady pace since the early 1970s, but so has the tax rate.

That trend could change if the cost of fuel remains as high as it's been in recent months, state officials say.

Overall fuel tax revenue has gone from $66.2 million in 1972 to an estimated $405.8 million for the current year. Meanwhile, the tax rate on fuel has grown from 8.5 cents per gallon to 32 cents per gallon.

Fuel taxes have been increased nine times over the past three decades, according to data supplied by the state Department of Revenue. Five of those increases have occurred within the past seven years.

Recent concerns about a slight drop in tax collections because of the high gas prices are nothing new. And the losses are mostly because of business cutbacks in commercial truck traffic, not everyday drivers, said Deputy Revenue Secretary Mark Muchow.

"Folks tend to need it and buy it," Muchow said.

The state's fuel tax revenue took huge hits for three consecutive years starting in 1979 during a serious economic downturn in the state.

From 1979 to 1980, the state lost $8.3 million in revenue, seeing a decline from $111 million to $102.8 million. By the end of the downturn in 1982, revenues were down to $92 million.

To stem the bleeding, state lawmakers implemented a sales tax on wholesale purchases of fuel in 1983, Muchow said. The sales tax and an upturn in excise tax collections stabilized the revenues, all of which are used to maintain the state's road system.

All state fuel taxes are paid by entities that pick up the fuel at distribution points, Muchow said. Those costs trickle down to the consumers.

Back in the early 1970s, the taxes represented 25 percent of the price of a gallon of fuel, Muchow said. Today, the taxes account for between 8 percent and 9 percent.

For the most part, the amount of fuel that regular consumers buy stays pretty static, Muchow said.

However, if gas prices continue the current upward trend, Muchow predicted that motorists would start changing behavior, which could end up hurting fuel tax collections in a big way.

As gas prices relative to economic conditions trended downward from the mid-1980s through the 1990s, people tended to start buying bigger vehicles because the price of fuel wasn't eating so much of their budgets, Muchow said.

But with current conditions - the average price for a gallon of gas in West Virginia has jumped to nearly $4 - it's only a matter of time before people buy smaller, more fuel-efficient vehicles, Muchow said.

That could leave lawmakers looking for new ways to shore up the road fund, he said.

West Virginia officials have been watching what other states are doing to try to come up with ways to fund highway maintenance in the face of increasing asphalt costs, Muchow said.

"Every state in the country is facing the same issues," he said.

Lawmakers nationwide have refrained from raising taxes on fuel because of the already high prices, Muchow said.

Some states, including Indiana and Pennsylvania, have been looking into privatizing roads.

In Virginia, lawmakers have tried raising taxes on motorists or allowing local transportation districts to levy taxes on residents, but those plans were short lived, Muchow said.

Now, Virginia lawmakers are looking into raising fees on driver's licenses and increasing the sales taxes on vehicle purchases. They're also looking into raising income taxes and possibly fuel taxes, Muchow said.

Proponents of raising fuel taxes argue that increases in driver's license fees or income taxes only burden residents, Muchow said. Increases in fuel taxes shift some of the burden for maintaining roads to non-residents.

Contact writer Justin D. Anderson at jus...@dailymail.com or 348-4843.