Tax soars along with gas price

Tied to the wholesale price of gasoline, the increase is the largest in the state in 16 years

Staff WriterDecember 17, 2005 

Start saving your loose change.

North Carolina, already home to the Southeast's costliest gasoline, is raising its motor fuel tax 2.8 cents a gallon with the new year.

That's an extra two quarters for every 18-gallon fill-up.

The increase is the state's largest in 16 years and, like higher prices for other commodities, is caused primarily by the fallout from Hurricane Katrina this summer.

Because part of the tax is calculated based on wholesale gasoline prices, the Katrina-related jump at the pump is showing up now, said Reggie Hinton, deputy secretary of the N.C. Department of Revenue, which sets the tax.

"Unfortunately, that's the situation we're in," Hinton said, explaining that the increase is not optional.

By state law, the department must calculate the gas tax twice a year. The agency bases part of that on the average wholesale price of gas nationwide for a designated period -- which rose to about $1.77 for the six months that ended Sept. 30, Hinton said.

The 10 percent tax increase will push the total tax from 27.1 to 29.9 cents per gallon.

The increase comes just a few months after a legislative push by Republicans and small-business owners to get Gov. Mike Easley to temporarily cap the gas tax. This fall, some Republicans feared the tax increase would be 5 cents or more.

Gregg Thompson, state director for the National Federation of Independent Business, said the smaller increase still will hurt small-business owners, especially those who rely heavily on transportation. Entrepreneurs must pay more to have their products delivered, and many pass their costs on to consumers.

"The business community wants good roads in the state just like others, but we also don't want a higher tax," Thompson said. "We don't see a result of better roads in the state, necessarily."

He said his group will ask Easley to postpone the increase or to take another look at capping the tax and using surplus budget dollars to help cover the difference.

State Sen. Phil Berger, a Republican and the Senate minority leader, called on Easley on Friday to convene a special legislative session to consider reducing the tax.

But Larry Goode, former state highway administrator and co-chairman of N.C. Go!, a transportation advocacy group, said the state needs all the money it can get.

"That is a shortsighted look [to cap the gas tax]. This tax increase is only 2.8 cents," said Goode, whose group pushes for better transportation funding.

He said high oil prices mean the N.C. Department of Transportation's bills for construction-related goods such as asphalt, which is petroleum-based, are going up faster than the gas tax.

According to AAA Carolinas, every penny on the state gas tax brings in $20 million over six months to the DOT.

Of that, 75 percent goes to road maintenance and the rest to new roads, said Sarah Davis, spokeswoman for AAA Carolinas.

"As a consumer, I don't want to pay more," she said. "But looking at the state of our roads in North Carolina, it's still needed."

Goode said North Carolina needs more money than other states because it has a larger network of roads. All county roads, for example, are maintained by the state.

And adjusted for inflation, the tax remains among the lowest in state history. The 12-cent tax in 1970, for example, would amount to 60 cents today.

Despite the tax increase, Goode doesn't expect drivers to start using alternative transportation the way they did when gas prices topped $3 a gallon.

"You had a lot more carpooling and taking the bus," he said.

Staff writer Barbara Barrett can be reached at 829-4870 or bbarrett@newsobserver.com.

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