Twin tax hikes to hit drivers

A 3.9-cent state increase and the end of a U.S. tax break may add up to 8¢ a gallon at the pump.

bsiceloff@newsobserver.comDecember 30, 2011 

  • The gas and diesel tax rate is set at 17.5 cents a gallon plus 7 percent of the average weighted wholesale price over a recent six-month period. Prices have declined this fall, but the January tax rate is based on average prices from April through September, when they were higher.

    When the 38.9 cents is added to a one-quarter-cent inspection fee on each gallon, plus the federal tax of 18.4 cents, North Carolina's new combined state and federal gas taxes and fees will be 58.55 cents per gallon. Only Connecticut, California, New York and Hawaii have higher gas taxes and fees now, according to the American Petroleum Institute.

    The same state diesel taxes and fees will be combined with a 24.4-cent federal diesel tax, for a new total diesel rate of 68.55 cents - higher than in all but six other states.

Triangle drivers could see gasoline prices climb 8 cents a gallon in January, when the state motor fuels tax will grow by 3.9 cents and a federal ethanol tax break worth 4.5 cents a gallon will go away.

Petroleum wholesalers will be hit directly with the twin tax increases, and industry officials say they'll surely pass them along to consumers.

"Sooner or later, that 8 cents will be reflected in the price," said Gary Harris, executive director of the N.C. Petroleum and Convenience Marketers, a retailers trade group. "Yes, we will see it."

The state motor fuel tax is adjusted every six months, rising or falling to reflect recent changes in wholesale fuel prices. On Sunday, the tax will increase to 38.9 cents per gallon, an all-time high in North Carolina. Only four other states have higher gas taxes now.

The gas tax is North Carolina's chief funding source for road and bridge maintenance, new highway construction, transit service and other transportation spending.

The federal government hasn't changed its 18.4-cent gas tax since 1993, but a decision in Washington this year has the effect of a tax increase.

Congress ended a 30-year-old subsidy that reduced taxes by 45 cents on each gallon of ethanol that refiners and wholesalers blend with gasoline. Most gas sold today is 10 percent ethanol, so that works out to 4.5 cents on a gallon of so-called "E10" gasoline.

"Yes, we'll see costs for station operators (and presumably, the public) go up 4.5 cents [at] midnight Dec. 31, and I suspect much of it will be passed along immediately," Tom Kloza, chief oil analyst for the New Jersey-based Oil Price Information Service, said by email. "That would also be true for [North Carolina] and other states that see higher tax levies on fuel."

While the end of the subsidy will make ethanol more expensive right away, another action in Washington this year could eventually push ethanol prices in the other direction.

Congress eliminated a tariff of 54 cents per gallon on imported ethanol - most of it made from sugar cane in Brazil, at a lower cost than the same liquid produced from corn in the United States. That move could increase imports and eventually reduce prices for ethanol.

North Carolina's General Assembly reduced other state taxes this year, but legislators could not agree on what to do about the gas tax.

The House voted overwhelmingly in November to cap the tax at its current level, 35 cents. But the Senate adjourned without taking up the bill, so the law allowing a tax increase Jan. 1 was left unchanged.

Industry analysts say that pump prices are pushed up and down by a mix of sometimes mysterious market forces, and it can be difficult to trace the impact of a tax increase. In a volatile era when prices can change by 5 to 20 cents in a week, Kloza said, a 4.5-cent tax change "doesn't have the resonance it once had."

Siceloff: 919-829-4527 or blogs.newsobserver.com/crosstown or twitter.com/Road_Worrier/

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