Gas Prices to Take Big Jump as State Tax Goes Up, Subsidy Expires
Frank McNeill Jr. had been advising North Carolina drivers to fill up their gas tanks before today.
The state tax on gasoline will climb 3.9 cents a gallon starting today. In addition, the cost of ethanol will increase by 4.5 cents a gallon, not in a tax hike but in the expiration of a federal subsidy.
“We tried to get the legislature not to let it go through,” McNeill said of the gas tax hike. “The House voted to cap the tax, but the Senate ignored it and left town.”
McNeill, president of the Aberdeen-based McNeill Oil Co., said the N.C. Petroleum and Convenience Marketers organization lobbied both legislative chambers to cap the tax, but those efforts failed.
North Carolina’s motor fuel tax is determined according to a formula in place for decades. The formula reflects changes in the wholesale cost of fuel recorded during the previous six months. The tax change is usually six months behind on fluctuating wholesale gas prices.
The change in the gas tax is dependent on the formula built into a state law establishing the gas tax years ago. The state uses the tax revenues to maintain and repair existing highways and to build new roads.
Although the tax revenue is needed and is built into existing law, the legislature can vote to cap the tax on a temporary basis. Such a cap was proposed during a special session held in late fall, when the House voted in favor of the cap. However, the Senate had already adjourned without taking up the issue.
The increase in the cost of ethanol fuel reflects the expiration of a subsidy approved by Congress 30 years ago. Most regular and premium gas sold today contains 10 percent ethanol.
McNeill said the only exception to the 10 percent ethanol mixture is probably found at the coast, where boat owners fill up their tanks at local stations. He said ethanol and ethanol-mixtures do not work well in boats, and most retailers don’t bother to stock two types of gas.
“I thought it was a terrible idea to put it (ethanol) in gas in the first place,” McNeill said. “It was just a political feel-good thing at the time.”
McNeill said ethanol provides little more than negligible improvement in gas mileage, but it can cause damage to a car’s fuel system, especially in older vehicles.
The state needs the gas tax to continue highway maintenance and improvement, and North Carolina is credited with better quality highways than those found in many other states. However, North Carolina has the fifth-highest gas tax in the nation.
When the tax increase goes into effect Jan. 1, the price of a gallon of gas in North Carolina will include 38.9 cents in state tax and 18.4 cents in federal tax. With fees added, the total will become 58.55 cents per gallon. The tax for diesel fuel will climb to 68.55 cents.
McNeill said retailers have no choice but to add the higher tax to prices.
“We’ve already absorbed a lot of that cost,” he said.
McNeill also questions how much revenue the state will lose in sales along the borders of South Carolina and Virginia. South Carolina’s gas tax is 22 cents lower than the Tar Heel State’s, and Virginia’s tax is 20 cents lower.
“I wonder how much revenue the state is losing from people who live on the border, say at Rowland or Charlotte, who will be buying more gas in South Carolina,” he said.
The tax changes come on the heels of recent slight declines in the price at the pump. The tax increase will be in effect until the end of June, when another adjustment takes effect — just possibly lower to reflect the lower prices of the final six months of 2011.
Retail prices fluctuate according to miscellaneous marketing changes, from refinery operations to political issues around the world to availability to weather disasters. Turmoil in oil-producing countries can raise prices, and the latest specter is the threat by Iran to close the Gulf of Hormuz if additional sanctions are imposed.
The gulf is a major transportation resource for shipment of oil from the Middle East to the United States and elsewhere.
Contact Florence Gilkeson at email@example.com.
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