McDonnell says his roads plan would make Virginia the only state to end its gas tax

Gov. Bob McDonnell opened the 2013 General Assembly session by proposing a dramatic change to the way Virginia raises money for building and maintaining roads.

"The proposal would make Virginia the first state in the nation to eliminate the state tax on gasoline," McDonnell said in a Jan. 9 news conference announcing the plan.

We wondered if his claim is correct, so we did some checking.

McDonnell’s plan would end the Virginia’s 17.5-cent excise tax on a gallon of gas. The revenue would be replaced by increasing the state’s 5 percent sales tax to 5.8 percent and dedicating the new proceeds to roads. Diesel would still carry a 17.5 cent per gallon excise tax.

Virginia’s gas tax rate has been unchanged since 1987. With cars getting better mileage and using alternative fuels, McDonnell says the levy no longer produces enough money to pay for Virginia’s road needs. Sales tax revenues, in contrast, are expected to steadily grow.

All states have some form of excise tax on gasoline, according to a report by the American Petroleum Institute and a joint study published by the National Council of State Legislatures and the American Association of State Highway and Transportation Officials Center for Excellence in Public Finance. Thirty-eight states impose a flat, per-gallon tax like Virginia. Other states set the tax to a percentage of the price of gas per gallon. A few states levy a combination of excise and sales taxes on gas.

All told, Virginia had the 11th lowest gas excise tax in the nation at the start year, according to the API. The federal government, we should note, also collects an 18.4 cents per gallon excise tax.

So it’s clear that all states tax gas. But before ruling on the governor’s claim, one question remains: If McDonnell’s plan passes, does that mean that motorists will pay zero state gas tax at Virginia pumps?

The answer is no.

Virginia would continue to collect an 0.6-cent-per-gallon petroleum storage tank fee that is charged in addition to the excise tax.

The levy isn’t limited to gasoline -- it’s collected on most fuel sales. Unlike the excise tax, it does not support transportation. Instead, the money goes to a program, run by the Department of Environmental Quality, that reimburses qualified landowners for some of the cost to remove underground fuel storage tanks. The fund collected $3 million in November and paid out $3.4 million that month, with just under $1 million in the bank. Over 2,000 claims were pending at the end of November.

Experts we consulted did not agree on whether the fee constitutes a "gasoline tax." The American Petroleum Institute counts it among "other taxes" on gasoline in its summary of state levies.  Joung Lee, associate director of finance at AASHTO, said the association would consider the storage tank fee a special-purpose user fee, not a gasoline tax.

He also said Virginia’s proposal would put the state in a unique position.

"Our understanding is that every state has a flat per gallon excise tax for fuels and some also have a supplemental sales tax," Lee said. "Virginia’s proposal is more unique in that there have been some discussions to keep up with inflation by indexing the gas tax or converting to a sales tax on gasoline but Virginia is not just proposing a sales tax on fuel but making transportation part of the overall sales tax regime."

Scott Drenkard, economist with the Tax Foundation, said it’s accurate to say that Virginia "would be the first state without a gasoline excise tax."

We should also note that fuel distributors in 12 Northern Virginia localities pay a 2.1 percent sales tax on gas and other fuels. Although the levy is sanctioned by state law, the $70 million in annual revenues it produces do not go into the state budget -- they are used to help pay for mass transit systems that shuttle workers to and from Washington. McDonnell’s plan would not affect this local tax.

Our ruling

McDonnell said his proposal to overhaul road funding would make Virginia the first state to eliminate its gasoline tax.

The governor wants replace Virginia’s 17.5-cent-a-gallon excise tax on gas with an increase in the state sales tax. His plan, if approved, would make Virginia the only state without an excise gasoline tax.

His proposal would leave intact an additional 0.6-cent-a-gallon levy at Virginia pumps that goes into a fund to help landowners remove old petroleum storage tanks. Virginians would continue to pay some state gasoline tax -- 6 cents on a 10 gallon fill up.

We won’t quibble about this small levy, which is not used to build roads. We rate McDonnell’s statement True.

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