INDIANAPOLIS & SACRAMENTO --
Two states’ gas taxes
will change effective July 1—but will not stay the same for long.
California’s Tax Swap
In California, the excise gas tax will drop from $0.395 to $0.36
per gallon for the 2014-2015 fiscal year, ending June 30, 2015, as
reported by the Sierra Sun Times. It’s an annual adjustment
that is mandated under two laws signed in 2010 by then Gov. Arnold
Schwarzenegger. The laws—referred to as the “fuel-tax
swap”—re-engineered the sales and excise taxes on gasoline in a way
that would divert more money into the state’s general fund at a time
when it was running low.
The swap lowered the state sales tax on gasoline, which funds
local government, and is based on a percentage of price, to 2.25%.
Then it required the excise tax, which pays for transportation
infrastructure and is a flat rate, to be adjusted to make up the
difference. The adjustment must be revenue neutral, meaning that the
taxes customers pay at the pump would remain the same under the new
laws as under the old tax structure.
Each spring, the California State Board of Equalization (BOE)
votes on how much to adjust the excise tax rate, which is effective
July 1 of each year, to keep it revenue neutral. The rate is based
on estimates from the state Department of Finance and IHS Global
Insight, an economic and financial data firm, of the expected price
and number of gallons that would be purchased during the coming
“This is great news for California taxpayers,” said State Sen.
George Runner, a member of the BOE who opposed the fuel-tax swap
legislation, during a press conference announcing the rate change.
“It comes at a great time for Californians when they’re on the road
on their summer vacations.” The 3.5-cents-per-gallon (CPG) drop will
shift the state from having the highest state gas taxes in the
country to levying the second-highest, after New York.
Indiana Closes Loophole
In Indiana, the state will be switching from a prepaid sales tax
on gasoline, which was collected from retailers, to a gasoline-use
tax based on a rolling monthly statewide average that is collected
from distributors. The tax rate could change from month to month
depending on the average price for gasoline. For the month of July
2014, the tax will be 22.9 CPG.
The tax change was voted into law last year, after the Indiana
Petroleum Marketers and Convenience Store Association (IPCA) lobbied
for legislation that closed a loophole in how taxes were collected
in the state, according to a report from last year in the
Northwest Indiana Times.
In the original collection scenario, gas retailers would pay
around 80% of the gasoline sales tax due to the distributor when it
was delivering fuel, IPCA executive director Scot Imus explained to
the newspaper. The retailers would then self-report and pay the rest
at the end of the month. These “true ups” were vulnerable to
competitors gaming the system and underreporting that remaining 20%,
the IPCA believed.
“Up until now, it has basically been an honor system,” Imus told
the newspaper. “It's as if you and I were paying our income taxes
without a W-2.”
Some of these cheaters could potentially pocket the extra money
or use it to undercut the prices of their competitors, the IPCA
alleged. The association estimated that Indiana may have lost $50
billion in taxes in the past eight years because of this practice.
The new gasoline-use tax will be collected when a qualified
distributor sells gasoline to a nonqualifieddistributor,
according to the Indiana Department of Revenue (DOR), but not when a
qualified distributor sells gasoline to another qualified
distributor or exports it to another state. The qualified
distributor would collect and remit the tax from the nonqualified
distributor to DOR.
Retail stations should include the gasoline-use tax in the price
at the pump and will be reimbursed in the same way as for other
gasoline or special fuel taxes.