California Will Reduce Gasoline Tax by 2.2 Cents

Days after California Gov. Jerry Brown proposed imposing a per-mile tax on cars because of lower income from gasoline taxes, the state’s Board of Equalization has announced a reduction in those taxes by 2.2 cents per gallon.

If adopted, the per-mile tax would help provide money to build roads and fix potholes. Those funds are declining because improved fuel economy has reduced sales of fuel and the state’s income from gasoline taxes.

The seemingly contrary action by the tax agency has its origins in a bit of political horse-trading several years ago.

In 2010, legislators in Sacramento faced the need to pay off highway bonds, but were unwilling to take money from the state’s general fund, which was overstrained at the time. The work-around adopted by the legislators and then-Gov. Arnold Schwarzenegger was to drop the sales tax on gasoline and replace it with a per-gallon fee that would raise the same amount of revenue.

This requires the Board of Equalization to annually set the fee so it matches what the sales tax would have generated.

With gasoline taxes declining in California to an average of under $2 per gallon in many areas of the state, the Board had to scale back the per-gallon fee by 2.2 cents, to 27.8 cents per gallon.

The state’s drivers use about 15 billion gallons of gas per year, so each one-cent change in the tax translates into about $150 million at the pump. The 2.2 cent cut in the gas tax will reduce the funds available for road repairs and transit improvements by about $328 million.

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