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Road Worrier: April Fools! It’s a gas tax cut, for now

The lawmakers’ new gas tax formula will give North Carolinians a quick tax cut this year – but it wards off a bigger tax cut.
The lawmakers’ new gas tax formula will give North Carolinians a quick tax cut this year – but it wards off a bigger tax cut. Raleigh

North Carolina’s quickie tax cut is supposed to take effect on April Fools’ Day.

Do not read any significance into that. It is, surely, a coincidence of the calendar.

Republican Senate leaders announced in February that they wanted to reduce the gas tax in March – as Phase One of a puzzling plan to push the tax higher in future years. They voted, in a John-Kerryesque manner, to cut the gas tax before they voted to raise it.

Republican House leaders let the March date slide before they answered with their own idea: Cut the tax in April and leave it there for the rest of 2015 – as Phase One of a plan to let taxes fall where they may, starting in 2016.

Both chambers were expected to cast their first votes Monday night – with hope for final action and a signature by Gov. Pat McCrory on Tuesday – on a hybrid plan that was worked out last week.

It is more paradoxical than the sum of its House and Senate parts. It’s a small tax cut that wards off a bigger tax cut.

The tax drops from its current 37.5 cents per gallon to 36 cents effective April 1. That’s Wednesday, just a few hours after the gubernatorial ink is scheduled to dry.

The tax falls again to 35 cents next January, and 34 cents in July 2016. After that – well, we’ll get back to after that.

The first question is: Can the state actually reduce this tax overnight? Yes, it’s easy.

The entire $1.9 billion in state gas and diesel taxes paid over the course of a year is collected from about 50 wholesale fuel suppliers. For whatever taxes they owe on April 1, the suppliers will make their first payments to the N.C. Department of Revenue in May.

The second question matters more: Will drivers actually enjoy the benefit of this 1.5-cent quickie cut? Only in theory.

On April 1, we can expect to hear state leaders thanking themselves for reducing our taxes. But if we rush out to the nearest gas station, we’ll find pump prices either higher, lower or exactly the same as they were on the last day of March.

Tom Kloza, chief oil analyst for the New Jersey-based Oil Price Information Service, said wholesale fuel prices can rise or fall 3 to 7 cents per gallon in a day. A 1.5-cent change in the tax would disappear as “noise,” Kloza said by email, “in that it is such a small percentage of what goes into the actual price.”

Ernie Brame, manager of the 95 Petro truck stop on Interstate 95 at Kenly, said he’ll drop his price if the tax goes down.

“I can’t tell you my competition would follow,” Brame said. “The retail customer won’t know the difference, at a penny.”

The new law cuts the tax a few pennies over the next 21 months, while preventing it from dropping much more sharply. If current law was left unchanged, North Carolina drivers would see the tax fall nearly 8 cents a gallons, to 29.6 cents, in July.

A new formula

Besides setting fixed gas tax rates through the end of 2016, the legislation will replace a formula that moves the rate up or down every six months to reflect changes in wholesale fuel prices, which have plunged since late 2014.

Starting in 2017, a new formula will adjust the tax rate just once a year, based on changes in two measures. North Carolina’s steadily growing population gets a 75 percent weight in the calculation, and the national price index for energy costs gets 25 percent.

Our population is growing at about 1 percent a year. The energy index portion of the consumer price index rises and falls, but it is less volatile than the price of gasoline.

While the CPI gas component fell a whopping 32.8 percent in the year that ended in February, the larger energy number dropped only 18.8 percent. Energy costs are expected to rise again in coming years.

So after the gas tax falls to 34 cents at the end of 2016, state economists figure it will start climbing slowly again in 2017 – an average of 2.3 percent a year.

“The new adjustment formula is designed to provide the state with a stable source of revenue to help meet its transportation needs,” Barry Boardman, the legislature’s chief economist, said by email. “Population growth is a strong determinant for transportation needs, and it receives the most weight in the formula.”

Cheaper south of the border

Speaking from his Kenly truck stop, Brame said he recognized that the state needs a dependable source of money to keep roads and bridges in shape.

But after years of suffering the brunt of North Carolina’s high gas taxes – he knows how many truckers wait to fill their tanks with cheaper fuel in South Carolina – Brame had been looking forward to a 7.9-cent tax cut that would have taken effect just before the July Fourth holiday.

“Really, this tax decrease is a tax increase above what it should have been, if we had played by the (old) rules,” Brame said. “Now that the old formula doesn’t benefit DOT, we have to change it.”

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