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Did The Gas Tax Really Decrease?

California’s Board of Equalization (BOE) recently voted to decrease taxes for California motorists. So you’ll pay a little less at the pump, right? Probably not!

Before March 1 each year, the BOE must annually establish the excise tax rate for California gas sales for the upcoming fiscal year that begins July 1, 2014. Last week, the BOE unanimously approved a $0.035 decrease in tax per gallon from the current rate of $0.395 to $0.36 per gallon. This was the rate from the prior fiscal year, before the BOE raised the excise tax rate in 2013, for the current fiscal year.

The BOE sets the excise tax rate based on the projected sales price of gas per gallon and projected number of gallons drivers will purchase in the upcoming fiscal year. The upcoming annual excise tax rate of $0.36 per gallon also accounts for the difference in the actual and estimated sales tax revenue in the prior fiscal year that would have been collected under the former tax system. This is where it gets a little complicated.

In 2010 California enacted laws known as the “fuel tax swap”. The fuel tax swap was the procedure used to lower the sales and use tax rate for gasoline sales and raise the state excise tax for gasoline sales. The law requires that motorists pay no more, or less, net state tax on fuel purchase than they would have before the fuel tax swap. Therefore, the sales tax on gasoline is 2.25 percent, and the excise tax amount is then projected and then approved by the BOE.

The reduction in the excise tax is really done to ensure the net taxes collected do not exceed state mandated amounts. BOE member George Runner explained in a statement, “Lawmakers could start by scrapping the confusing and complicated gas tax formula they enacted in 2010 and replacing it with one that is simple, straightforward and easy to understand.”

In a separate news release, BOE Chairman Jerome E. Horton says: “Historical data indicates that this legislation requiring the adjustment does not have an impact on overall gas prices. However, it would be nice if this decrease in excise tax would result in a corresponding decrease in gas prices.”

Most taxpayers and motorist would agree that it would be nice and also make sense if a lower tax rate would actually mean paying less at the pump.

This article is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

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