Gas tax may not drop this summer

North Carolina motorists might not get a break in gas and diesel fuel taxes this summer, after all.

The tax is scheduled to drop by 2 cents to 27.9 cents a gallon on July 1. The current tax, 29.9 cents, has been the highest allowed by state law since 2006, Bruce Siceloff reports.

But — to boost revenues for the state Department of Transportation — the Senate Finance Committee this week proposed to make 29.9 cents the minimum rate, instead of the maximum.

If the General Assembly agrees, the July 1 tax cut will be canceled and the rate will stay the same — and it could go higher in the future.

North Carolina's motor fuel tax rate is set by a formula that rises and falls with a percentage of recent wholesale gas prices. The rate is fixed at 17.5 cents plus either 3.5 cents or 7 percent of the wholesale average, whichever is higher.

The Senate Finance proposal would fix the rate at 17.5 cents plus either 12.4 cents or 7 percent of the wholesale average, whichever is higher. That adds up to a minimum tax of 29.9 cents per gallon.

More after the jump.

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Under the proposed new formula, North Carolina's tax would rise above 29.9 cents if average national wholesale prices for gas and diesel fuel climbs higher than $1.77 a gallon.

The higher tax rate would close part of a DOT budget gap estimated at $300 million a year for the next several years. Each penny of gas tax is worth about $50 million a year to DOT.

Because gasoline sales have declined and the gas tax rate is expected to fall, Gov. Bev Perdue’s budget predicted a drop of $35 million in gas tax collections for the fiscal year that starts July 1, and $90 million for the following year. That’s one estimate of how much the higher tax would provide, said Mark Foster, chief financial officer for the state Department of Transportation.

The legislature's fiscal research staff calculates the change differently, saying the 29.9-cent rate would boost revenues by $50 million in the first year and $17.5 million the second year.