CA Gas Prices Just Got Cheaper: Excise Tax Rate Lowered

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‘Lowering the rate is the right thing to do, and I’m sure Californians will welcome this reduction,’ a state BOE vice chairman said.

The state Board of Equalization voted in Culver City on Tuesday to lower the excise tax rate for gasoline by 2.2 cents per gallon.

With the 3-2 vote, the excise tax rate on gas will be 27.8 cents per gallon from July 1 through June 30, 2017. The current excise tax rate of 30 cents per gallon will remain in effect until June 30.

“Today’s vote was simply a matter of fairness,” said BOE Vice Chair George Runner. “Californians overpaid gas tax last year because of a bizarre formula known as the ‘gas tax swap’ passed by lawmakers in 2010. Lowering the rate is the right thing to do, and I’m sure Californians will welcome this reduction.

“Unfortunately, even after the cut goes into effect, Californians will still pay some of the highest taxes in the nation,” he said. “What we need now is for lawmakers to simplify our tax laws and look for ways to provide value for the money that Californians send to government.”

California drivers pay two types of state taxes on gas: sales tax, which is a percentage of the price, and a per-gallon excise tax.

Before the so-called “fuel tax swap” took effect in 2010, drivers paid the full sales tax rate — then 8.25 percent — and an excise tax rate of 18 cents per gallon.
The fuel tax swap lowered the sales tax rate on gasoline to 2.25 percent and requires the BOE to set a per-gallon excise tax rate annually before March 1. The excise tax rate is calculated so that drivers still pay the same amount in overall taxes at the pump as they would have paid before the swap.

In the 2014-15 fiscal year, the BOE collected nearly $5.4 billion in excise tax for the state’s Motor Vehicle Fuel Account, which helps pay for highways, roads and other public transportation projects.

The sales tax on gasoline also helps fund a variety of state and local road programs.

The excise tax rate takes into account a number of factors, including forecast gas price, forecast amount of gallons sold, sales tax revenue that would have been collected prior to the fuel tax swap, and tax revenue over- or under-collected in the prior fiscal year.

The rate ensures that over a three-year period, motorists do not pay more or less in overall gas taxes than they would have prior to the swap.