Fuel prices fall, but taxes stay up

Gas prices have dropped this fall to the lowest levels in more than four years, but North Carolina's gas and diesel tax will remain at the highest level allowed by law -- at least through next June.

If fuel prices stay relatively low for the next few months, the tax rate could make a substantial drop when it is adjusted again July 1.

The tax is recalculated every six months to reflect changes in wholesale fuel prices. Legislators agreed last year not to let it rise above the current mark, 29.9 cents a gallon.

A formula in state law sets the tax at a flat rate of 17.5 cents per gallon, plus either 3.5 cents or 7 percent of average wholesale gas and diesel prices, whichever is higher. The rate that takes affect in January is based on an average wholesale price of $3.2165 from April through September, when pump prices broke through the $4 mark.

The legal cap limits this variable portion to 12.4 cents. If the cap were not in place, it would rise in January to 22.5 cents -- for a combined tax rate of 40 cents per gallon. The N.C. Department of Revenue said this week that the tax will stay right were it is, 29.9 cents, in January. The tax has not fallen below 29 cents since late 2005.

The recent free-fall in fuel prices didn't start until mid-September, so it was not reflected in the new rate calculations. On Wednesday, Triangle motorists were paying an average $1.628 per gallon for regular gas -- the lowest since February 2004, when it included a tax of 24.3 cents -- and $2.584 for diesel.

Reginald Little, assistant director of the revenue department's motor fuels tax division, said it's too early to predict what will happen when the tax rate is recalculated. The July 1 rate will be based on wholesale prices for September through March.

"If you keep an eye on prices over the next six months, that will tell you whether it's going to fall or not," Little said.

Related stories from Raleigh News & Observer