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State's Gas Tax to Rise in 2006

Posted on: Thursday, 18 August 2005, 18:00 CDT

Aug. 18--Even if gas prices stabilize or fall, West Virginia drivers will be paying for this summer's pump inflation all next year in the form of higher state taxes.

The 27 cents that the state currently charges per gallon could rise by about a nickel starting in January, since part of next year's taxes will be tied to the price of gas right now.

The biggest portion of state gas taxes is a flat 20.5-cent-per-gallon excise tax, which hasn't changed in more than a decade. But the remaining 6.5 cents comes from a sales tax equal to 5 percent of the average cost per gallon wholesale. This is recalculated annually by averaging wholesale costs from July 1 to Oct. 31.

The wholesale average for July through October last year came to $1.30 per gallon. Starting this past July, the tab began running for next year's calculation, and prices now are about 80 cents higher than last summer.

On Tuesday, for instance, the wholesale price for unleaded gas in Charleston averaged $2.10, according to the Oil Price Information Service, a petroleum market researcher. If that were to represent the average for the entire four-month sample period, next year's sales tax would jump by 4 cents, to 10.5 cents. Meanwhile, the excise tax would presumably be renewed unchanged.

At a minimum, the sales tax will probably jump to 8 cents next year, said Mark Muchow, fiscal policy director for the state Tax Department. "But it could be higher," he cautioned.

Gas prices have been rising steadily all summer, but they tend to come down after Labor Day. On the other hand, summer is far from over, and there's no telling how much higher gas could go. Wholesale gas prices surged 10.9 percent nationwide in July from a year earlier, the Labor Department reported Wednesday, and the prices for September deliveries are still climbing.

In the face of ever-higher crude oil prices, economists have been saying that a national average of $3 per gallon is possible before summer's end. As it is, the national average is at a record high, hitting $2.564 on Wednesday, according to the American Automobile Association. The West Virginia average was $2.583 while Charleston's was $2.643, which are both records too.

During the week ending this past Monday, every region of the country was hit with an increase of at least 10 cents a gallon, the U.S. Energy Department reported. That represented the biggest weekly gas-price run-up since the agency started tracking such figures 15 years ago.

Today's prices don't, however, constitute a record when they're adjusted for inflation. The $1.48 that drivers were paying in March 1981 would be equal to $3.11 per gallon today.

Still, West Virginia is fast approaching that level, and some state lawmakers have been questioning whether state taxes are too high. On top of the 27 cents in state taxes, drivers pay 18.4 cents per gallon in a flat federal tax.

At a meeting of the Legislature's Joint Standing Committee on Finance this week, Senate Majority Leader Truman Chafin, D-Mingo, said state taxes may explain why gas prices are higher here than in Kentucky and some other neighboring states. He called for an investigation of pricing disparities by the attorney general's office and got other committee members to agree to have gas industry officials summoned to a September meeting to discuss prices in the state.

All revenue from the state taxes, which came to more than $311 million last year, goes to highway maintenance, Muchow said. The federal gas tax is earmarked for the Highway Trust Fund, which keeps up the federal interstate system.

West Virginia's 27-cent tax compares to the average state tax of 20.8 cents, according to the Energy Department. Several surrounding states' are lower: Kentucky charges 16.4 cents; Virginia, 17.5 cents; and Maryland, 23.5 cents. But Ohio's tax is 28 cents, and Pennsylvania's, 30 cents.

Some of these states can charge less because they derive their highway funds from other sources, Muchow said. Virginia, for instance, funds highway construction with its general sales tax, he said.

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Copyright (c) 2005, The Charleston Gazette, W.Va.

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Source: The Charleston Gazette

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