Don’t look now, but the state fuel tax is increasing again in Maryland and this time in the midnight hour on New Year’s Day. The same scenario is also unfolding the same date in Virginia too, which routinely posts some of the cheapest gasoline prices from coast to coast, but for different reasons. That means gasoline prices could increase by a nickel per gallon in Virginia and by nearly three cents per gallon at self-serve gasoline kiosks across Maryland.
It is the second marginal increase in the state gas tax in Maryland in less than six months, after the tax increased by a mere four-tenths of a penny, in July due to inflation. Although most motorists didn’t notice it then, because it only increased by 0.4 cents per gallon, as adjusted for inflation, that’s unlikely to be the case on the first day of the new year, when Marylanders see the cost of gas increase a few cents per gallon while it is rapidly decreasing all across the nation. Maryland’s gasoline tax will rise to two percent on January 1, 2015. It will increase again six months later on July 1, 2015, and once more on January 1, 2016, if Congress doesn’t pass the Marketplace Fairness Act by Dec. 1, 2015. Across the Commonwealth of Virginia, this change will likely result in a retail price increase of approximately five cents per gallon.
The timing of the state fuel tax increases in Maryland and Virginia is peculiar yet predictable. Though no one in either state capital foresaw it, the nationwide average price of gas has plummeted for 95 days in a row through Monday, the longest consecutive streak on record. Why the gas tax spike in the bordering states now? The reasons vary from state to state. By design, the increase in the gas tax in Maryland is automatically phased-in and adjusted for inflation, as mandated by the landmark bill crafted by lawmakers in Annapolis.
Pump prices are increasing in Virginia because Congress didn’t pass the Marketplace Fairness Act of 2013 or H.R. 684 this year. The act is designed to empower states to apply the sales tax to Internet sales. It emerged as a “fail-safe measure” in Virginia’s landmark 2013 transportation act (HB2313). Congressional inaction is triggering the automatic increase in Virginia’s wholesale gas tax on Jan. 1. As the bill, also commonly referred to as the Internet sales tax bill, failed to pass, there will be an automatic increase of 1.6% (from 3.5% to 5.1%) on Virginia’s wholesale gas tax on Jan. 1, 2015. In contrast, Maryland’s 2013 transportation act indexes its fuel tax rate to annual CPI changes. Whatever the reason, it might all seem a little arcane to average motorists in both states who are enjoying the cheapest gas prices at Christmastime since 2008.
“The slight uptick in the state fuel price rate in both Maryland and Virginia will probably go largely unnoticed by all, but the most discerning consumers,” said John B. Townsend II, AAA Mid-Atlantic’s Manager of Public and Government Affairs. “Pump prices are plunging now and everything looks rosy at the self-serve gasoline kiosk. On top of that, barring any disruptions in domestic production or unexpected spikes in the global price of crude, consumers could see prices drop a few more cents per gallon before the first of the New Year.”
Here is the most ironic thing: at current gas prices, Virginia motorists will still be paying less tax on gasoline purchases then they were before lawmakers in Richmond passed HB2313. Yet, that’s not the case for Maryland consumers due to differences in funding mechanisms. In Virginia, the state fuel tax rate escalates to sixteen and two-tenth cents (0.162) per gallon on gasoline purchases, and to twenty and two-cents (0.202) on a gallon of diesel fuel, effective Jan. 1, 2015, according to the Virginia Department of Motor Vehicles. Motorists in both the Northern Virginia and the Hampton Roads Transportation Districts pay a 2.1 percent sales tax on wholesale motor fuels in those districts. The current total state fuel tax on gasoline in Virginia is 17.28 ¢ per gallon, and it is a total of 26.08¢ on a gallon of diesel. Virginia consumers pay a total of 35.68¢ per gallon in state and federal excise taxes on gasoline purchases, and 50.48¢ for a gallon of diesel fuel.
On the other side of the Potomac River, the current state motor fuel excise tax on gasoline purchases in Maryland is 27.40 cents per gallon and it is 28.15 cents a gallon on diesel. The rate is increasing Jan. 1. Maryland lawmakers were forewarned that the state motor fuel tax would increase under the provisions of HB1515, the milestone “Transportation Infrastructure Investment Act of 2013,” which also increased the vehicle registration fee surcharge. In fact, in its Fiscal and Policy Note, the Department of Legislative Services warned: “The rate is equal to…2% beginning January 1, 2015; and 3% percent in fiscal 2016. Unless federal legislation is enacted by Dec. 1, 2015, authorizing the State to require the collection of the sales and use tax on sales made by out-of-state sellers to Maryland consumers, the rate will increase from 3% to 4% beginning Jan.1, 2016 and increase to 5% in fiscal 2017.”
In one fell swoop, Maryland increased its motor fuel tax for the first time in 20 years. The new law, which went into effect June 1, 2013, raises approximately $4.5 billion in transportation funding over a six-year period. That same year, the Virginia General Assembly in Richmond gave the nod to long-term transportation funding (HB2313) for the first time since 1986. The District of Columbia Council also enacted the “Motor Vehicle Fuel Tax Amendment Act of 2013,” which ties the city’s fuel tax to wholesale motor fuel prices. Virginia became the first state to eliminate the conventional cents-per-gallon fuel tax, and the District of Columbia followed suit. In 2013, at least 15 other state legislatures passed similar fuel tax legislation or eyed enacting such legislation.
Maryland’s fuel tax rate on gasoline purchases increased roughly by 3.5 cents per gallon from 23.5 cents per gallon, as of July 1, 2013. At that time, Maryland legislators indexed the state gasoline tax to the Consumer Price Index to adjust for inflation. The legislation also limited the index increase to the gas tax rate so that it could not exceed eight percent a year. The Maryland Comptroller’s office uses two methods to calculate the motor fuel tax increase: the average percentage growth in the CPI, and a percentage of the average retail price of gasoline, also known as the “Sales and Use Tax Equivalent Rate.”
In Virginia, “the wholesale tax on gas is re-calculated every six months by multiplying the now 5.1% with the average wholesale price of gas for the preceding six months.” Nationwide, the average state excise tax on a gallon of gasoline is 20.50¢, and it is 19.07¢ per gallon of diesel, according to the latest updated figures from the API. That only tells part of the story. Other state taxes and fees average 10.39¢ per gallon, for a total average state taxes and fees on gasoline coming in at 30.88¢ a gallon. The total state and federal taxes on a gallon of gasoline is 49.28¢ and it is an average total of 55.15¢ on a gallon of diesel.