FISCAL NOTE
Date Requested: February 12, 2025
Time Requested: 08:47 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1755 |
Introduced |
HB2193 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund, State Road Fund
Sources of Revenue:
General Fund State Road Fund
Legislation creates:
Increases Revenue From Existing Sources, Decreases Existing Revenue, Increases Existing Expenses
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to eliminate the motor fuel excise tax and to replace any income from the tax with an equivalent increase in the state sales tax.
According to our interpretation, the proposed bill would eliminate the motor fuel excise tax, except for the tax on Aviation Gas, and increase the consumer sales tax rate with the tax attributable to the increased tax rate being dedicated to the State Road Fund. Under current code, the motor fuel excise tax is comprised of a flat rate tax of 20.5 cents per invoiced gallon and a variable rate tax which is 5 percent of the average wholesale price of each motor fuel as determined annually by the State Tax Commissioner.
The legislation reduces the motor fuel excise tax to zero for all fuels except for “airline fuel”. The legislation also increases the consumer sales tax rate to seven and eight-tenths percent with collections attributable to the additional one and eight-tenths of a percent being dedicated to the State Road Fund. The provisions of the bill are effective July 1, 2025.
The provisions of this bill would shift the burden for maintaining state roads from the road user to the general consumer. Major road users such as the interstate trucking industry and tourists passing through on the interstate highways stand to benefit from the change. Lower user fees could generate increased travel on major state roads by the road users resulting in additional wear without increased funding to pay for more frequent maintenance. Most state residents and tourists who choose to spend time in the state beyond a short visit would pay higher total taxes. The greatest increase in tax burden would be on those state residents with below average travel on roads.
.
Per our interpretation, there would be some decline in General Revenue collections due to consumer spending shifts in response to the higher sales tax rate. Based on current projections of motor fuel excise tax collections, the dedicated consumer sales tax would increase net State Road Funding by a $143.8 million in FY2026, by $177.5 million in FY2027, and by increasing amounts in subsequent fiscal years.
The growth in tax revenue occurs because general sales tax collections rise each year with both inflation and any increase in consumption habits. Motor fuel excise taxes are not adjusted each year for inflationary growth absent a significant spike in wholesale fuel costs. Fuel tax yields remain relatively flat each year absent a tax rate policy change as the rate per gallon of fuel is static, but sales tax revenues grow over time.
Additional administrative costs to the State Tax Department would be $54,500 in FY2025.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2025
Increase/Decrease
(use"-") |
2026
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
54,500 |
0 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
54,500 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
143,800,000 |
177,500,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the proposed bill would eliminate the motor fuel excise tax, except for the tax on Aviation Gas, and increase the consumer sales tax rate with the tax attributable to the increased tax rate being dedicated to the State Road Fund. Under current code, the motor fuel excise tax is comprised of a flat rate tax of 20.5 cents per invoiced gallon and a variable rate tax which is 5 percent of the average wholesale price of each motor fuel as determined annually by the State Tax Commissioner.
The legislation reduces the motor fuel excise tax to zero for all fuels except for “airline fuel”. The legislation also increases the consumer sales tax rate to seven and eight-tenths percent with collections attributable to the additional one and eight-tenths of a percent being dedicated to the State Road Fund. The provisions of the bill are effective July 1, 2025.
The provisions of this bill would shift the burden for maintaining state roads from the road user to the general consumer. Major road users such as the interstate trucking industry and tourists passing through on the interstate highways stand to benefit from the change. Lower user fees could generate increased travel on major state roads by the road users resulting in additional wear without increased funding to pay for more frequent maintenance. Most state residents and tourists who choose to spend time in the state beyond a short visit would pay higher total taxes. The greatest increase in tax burden would be on those state residents with below average travel on roads.
.
Per our interpretation, there would be some decline in General Revenue collections due to consumer spending shifts in response to the higher sales tax rate. Based on current projections of motor fuel excise tax collections, the dedicated consumer sales tax would increase net State Road Funding by a $143.8 million in FY2026, by $177.5 million in FY2027, and by increasing amounts in subsequent fiscal years.
The growth in tax revenue occurs because general sales tax collections rise each year with both inflation and any increase in consumption habits. Motor fuel excise taxes are not adjusted each year for inflationary growth absent a significant spike in wholesale fuel costs. Fuel tax yields remain relatively flat each year absent a tax rate policy change as the rate per gallon of fuel is static, but sales tax revenues grow over time.
Additional administrative costs to the State Tax Department would be $54,500 in FY2025.
Memorandum
The stated purpose of this bill is to eliminate the motor fuel excise tax and to replace any income from the tax with an equivalent increase in the state sales tax.
The bill fails to incorporate critical code sections.
For example, the International Fuel Tax Agreement is set forth in §11-14B-1. Et seq., which conforms laws of this state which relate to registration of motor carriers and reporting and payment of motor fuel taxes with the “Intermodal Surface Transportation and Efficiency Act of 1991”.
Further, this law changes the sales tax rate without referencing §11-15-1, et seq., and specifically, this bill makes no changes to §11-15-18b or §11-15B-13a, which impose sales and use taxes on motor fuel. It is not clear whether the sales tax rate increase proposed in this bill applies to all consumer sales, or just the motor fuel sales taxed in §11-15-18b or §11-15A-13a.
The language of the bill confuses the act of repealing the Motor Fuel Excise Tax with reducing the rate to “0”. The bill also references specific funds without providing a citation for those funds. Additionally, the bill refers only to the sales tax, with no mention of the use tax.
Person submitting Fiscal Note: Mark Muchow
Email Address: RADfiscal@wv.gov