North Carolina drivers would save money when they fill their tanks under tax legislation filed last week by House Republicans – but they would spend a lot more when they buy new cars and trucks, renew their registrations and pay for automobile insurance.
At the same time it reduces the state’s reliance on the unreliable motor fuels tax, House Bill 927 would have the state Department of Transportation collect hundreds of millions of dollars more in transportation fees and taxes each year.
Gas and diesel fuel taxes supply two-thirds of the DOT budget revenue and are 8 percent of all North Carolina state tax collections. Only South Dakota and West Virginia depend on gas taxes for a bigger share of total state funds, a Census Bureau report says.
That picture would change quite a bit under the legislation drafted by Rep. John Torbett, a Gaston County Republican.
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Torbett helped write a separate law, adopted in March, that dropped the gas tax to 36 cents a gallon on April 1 and will reduce it to 35 cents in January.
But his new legislation would change all this. The gas tax would drop to 30 cents in July, sharply reducing pump prices for consumers and cutting DOT revenues by about $275 million in the coming year.
At the same time, DOT would begin taking in much more money from its other established revenue streams – and from a big new one.
The highway use tax on car sales would increase from 3 percent to 4 percent – an additional $200 million a year for DOT and an extra $300 on the price of a $30,000 pickup truck. Division of Motor Vehicles fees for everything from driver’s licenses to car and truck registrations would rise by 50 percent, bringing in another $289 million, according to preliminary estimates from DOT.
The gas tax has become a shaky source of funds because our more fuel-efficient cars are using less gas each year, even as our highways are crowded with more cars – and because North Carolina’s tax rate fluctuates wildly as a percent of volatile fuel prices.
“The move away from the motor fuels tax, I believe, is going to be more sustainable in the future,” said Daniel Findley, a senior research associate at N.C. State University’s Institute for Transportation Research and Education.
Marc Finlayson of New Bern, chairman of NC Go, which lobbies for transportation improvements, likes the proposal to find more DOT money from other sources.
“Our philosophy has been if you’re going to raise revenues, you shouldn’t put everything on one revenue source,” Finlayson said.
Torbett said a few weeks ago that he wanted to generate an extra $1 billion a year for DOT by ratcheting up the existing rates for transportation fees and taxes. He said he did not favor new transportation taxes.
“I’m trying to work within the existing framework,” Torbett said in a March 12 interview.
But Torbett’s bill proposes a new 6.5 percent state tax on automobile insurance premiums. That could add about $106 to the cost of an average policy and generate $305 million a year for DOT, according to figures provided by the state Department of Insurance.
“While we don’t know for certain how much of it would be passed on to policyholders, Insurance Commissioner Wayne Goodwin opposes the tax because he believes it will almost certainly lead to a higher cost of car insurance for drivers,” Kerry Hall, Goodwin’s spokeswoman, said by email.
The new insurance levy would be more equitable than some taxes, Finlayson said. Lower-income residents generally carry less expensive insurance coverage, so they would pay a lower insurance tax than wealthier drivers.
Torbett’s measure also would phase out most of the yearly $255 million transfer of gas tax collections and other Highway Fund money to the General Fund, which is for nontransportation purposes. That means DOT would keep its hands on more of this money.
Torbett, who chairs committees that oversee DOT and its spending, did not respond to requests for comment. Other House leaders frequently defer to his ideas on transportation, but it’s hard to predict how his proposal will be received in the Senate.
Senate leaders might not be in a hurry to undo the gas-tax compromise they approved in March. And they might not be eager to implement tax increases that will be unpopular with car dealers and insurance agents.
Mostly higher fees and taxes
Some of the changes proposed by House Republicans to DMV fees and taxes on gasoline, car sales and auto insurance:
Gas tax: Now 36 cents. Will change to 35 cents in July and 34 cents in January. Proposed: 30 cents through the end of 2016.
Highway use tax on car sales: Now 3 percent. Proposed: 4 percent.
Auto insurance premiums: Proposed new 6.5 percent tax.
8-year driver’s license: Now $32. Proposed: $48.
Learner’s permit: Now $15. Proposed: $22.50.
Vehicle title: Now $40. Proposed: $60.
New car registration: Now $51. Proposed: $76.50.
Annual car renewal: Now $28. Proposed: $42.