BOE Set to Lower Gas Tax 3.5 Cents Per Gallon

The State Board of Equalization is slated to vote during the last week of February, after the Olympic flame has been extinguished in Sochi, Russia, to reduce the state’s gasoline tax 3.5 cents per gallon – a reduction of nearly 10 percent – effective July 1.

The board is required by state law to set a gas tax rate by March 1 that will produce an amount of revenue estimated to equal what a state sales tax on gasoline would produce during the same period, if the sales tax on gas had not been eliminated as part of the “gas tax swap” legislation enacted during the Schwarzenegger administration.

At a press conference today, BOE staff said the new state gas tax rate will be 36 cents per gallon, down from the current 39.5 cents per gallon.

Brad Williams, a consultant with Capitol Matrix Consulting, explained during the press conference that the excise tax rate adjustment is determined by the price of gas, and said, “California has had the largest reduction of gas prices of any state.”

The BOE said it is coincidence that the reduction is the same amount as an increase approved by the board last year.

The new rate is based on a staff estimate of what the price and consumption of gasoline will be in California in 2014-15. This estimate, in turn, is based on the Department of Finance’s estimate of consumption, coupled with a “reasonableness check” from a private firm regarding the price of gasoline in the future.

In addition to the estimate based on the forecast of gasoline purchases in the next fiscal year, the new rate has a “true-up” factor to correct for mistakes in the estimate for 2012-13.

The BOE said the rate would have gone down 4.8 cents per gallon based solely on the revenue forecast, but that number was reduced to 3.5 cents per gallon based on a 1.3-cent “true-up” for the amount of revenue actually collected in 2012-13.

BOE Member George Runner said he supports the tax cut, which will “give Californians a much-deserved tax break and help lower travel costs this summer,” but added, “It’s unfortunate that California will continue to have one of the highest gas tax rates in the nation.”

Mr. Runner also said the state’s gas tax system is too confusing and complicated. “Taxes are hard enough to accept, but when they can’t be simply explained, it erodes public confidence,” he said. “This tax scheme is so complicated even expert tax professionals have a hard time understanding it. Taxpayers deserve a simple and straightforward tax system that they can easily understand and won’t take them by surprise. They have the right to know how much they’re paying and where those dollars are going.”

February 14, 2014

© 2014 California Taxpayers Association. All Rights Reserved.