Impact of Prop 1 on Household Tax Burden

Part II: Your Transportation Tax Burden
Transportation taxes would climb 24% or to as much as $1,689 if the RTID/ST2 package is approved by voters in November.

By Michael Ennis, Director, Center for Transportation Policy

April 2007

• Every year Puget Sound residents pay an average of $1,257 per household in transportation related taxes.
• Public officials are asking voters to approve a multi-billion dollar roads and transit package that would increase the current transportation tax burden by as much as 24% per family.
• The added tax burden from the combined Sound Transit and Regional Transportation Investment District (ST2/RTID) package would be $286 per year for families, increasing the three county average to $1,544.
• Washington led the country in per capita sales tax collections in 2004, collecting an average of $1,577 per person, annually. If the ST2/RTID measure passes, the added sales tax rate will push the annual amount collected beyond $1,600 per citizen and continue to ensure that Washington remains the leader in per capita sales tax collections.
• If the ST2/RTID measure is approved, car tabs will climb an average of $68 per vehicle and the average family will pay about $137 more a year for registering a vehicle.
• Washington Policy Center's new Transportation Tax Index allows for the first time, Puget Sound families to have the economic context to fully understand how proposed tax increases for transportation projects stack up with how much a family currently pays.

Summary

Every year Puget Sound residents pay an average of $1,257 per household in transportation taxes. Public officials are asking voters to approve a multi-billion dollar roads and transit package in November that would increase the current transportation tax burden by as much as 24% per household.

The unbalanced tax proposal combines two areas of spending. The roads piece, commonly known as the Regional Transportation Investment District (RTID), would fund about $14 billion in regional road improvements. And the public transportation portion, Sound Transit phase 2 (ST2), would spend about $23 billion more on light rail, bus and commuter rail service.[1]

RTID proposes to raise the sales tax in Pierce, Snohomish and King Counties by 0.1% and impose a 0.8% increase in the Motor Vehicle Excise Tax (MVET). Sound Transit would increase the sales tax in the three counties by an additional 0.5%.

If the RTID/ST2 ballot measure passes, the sales tax rate in the three counties will climb a total of .6%. In other words, the sales tax rate in most areas of the three counties will range between 9.1% and 9.5%. To put this in perspective, Washington led the country in per capita sales tax collections in 2004, collecting an average of $1,577 per person annually.[2] Further increasing the sales tax rate will push the annual amount collected beyond $1,600 per citizen and continue to ensure that Washington remains the leader in per capita sales tax collections.

If the RTID/ST2 package is approved, the average household with one vehicle would pay about $218 per year in additional transportation taxes, or $286 per year for households with two vehicles.[3]

To determine how these amounts compare to a household’s current transportation tax burden, it is important to identify the various taxes and fees that are measurable and have a consistent impact on a household budget.

Household Transportation Tax Index

There are five types of public entities that have the authority to impose and collect taxes related to transportation in the Puget Sound. These are the federal government, state government, counties, cities and special districts created by the state, such as Sound Transit and the RTID.

These groups have a variety of financial powers that are used to support transportation related services. For example, the state has more than 60 types of transportation taxes and fees. Most of these assessments however, do not affect many people and therefore do not have a consistent impact on a household budget. Some of these include aircraft fuel taxes, log truck permits, and vessel fees.

Other taxes are paid out of a family budget more consistently and can be measured in a household transportation tax index. They include sales and fuel taxes, annual vehicle registration fees and the motor vehicle excise tax.

Until now, it has been difficult to understand how these tax burdens add up in the context of an average family budget. Both RTID and Sound Transit attempt to illustrate their ‘bottom line’ costs, but without the perspective of how much we currently pay it is difficult for taxpayers to judge the actual burden.

Furthermore, the agencies’ estimates are not always accurate and typically jump between household tax burdens and individual tax burdens. For example, RTID’s revised Blueprint for Progress estimates that if the combined package is approved, the average cost per household will be $218.[4]

But this estimate only assumes a vehicle ownership rate of one car per household. Since the RTID measure proposes a 0.8% increase in the MVET, the average vehicle ownership rate per household is important to gain an accurate estimate. In reality, the average vehicle ownership rate in Washington is 2.01.[5] This means the true household tax burden for the ST2/RTID package is actually $286 per year.

Creating a regional transportation tax index shows how much the average household currently pays in transportation related taxes in King, Pierce and Snohomish Counties, and defines how the ST2/RTID proposal will stack up against how much residents currently pay.

• Public Transportation
  There are four county or city public transportation systems in King, Pierce, and Snohomish Counties. Each system possesses a sales tax authority to fund its own services. Pierce Transit and Everett Transit impose a 0.6% sales tax and King County Metro and Snohomish Community Transit impose a 0.9% sales tax. Generally, each 0.1% sales tax cost a household about $25 per year.[6] So the average family in King County pays about $225 per year in sales taxes to fund King County Metro.

• Car Tabs
  Vehicle owners must pay an annual vehicle registration fee for the privilege of driving a car in Washington. The base registration fee is $30 a year. Car tabs also include a weight fee, which is based on the gross vehicle weight. The scale is $10 for vehicle weights between 0-4000 lbs, $20 for weights between 4001-6000 lbs, and $30 for vehicles weighing between 6001-8000 lbs.[7] This Policy Brief assumes an average vehicle weight fee of $10 per vehicle and an average of 2.01 vehicles per household when calculating the total annual vehicle registration fee. Therefore, on average, a household pays about $80 per year in vehicle registration fees.[8]

• Seattle Street Maintenance Proposition
  In 2006, voters in Seattle approved a road maintenance measure, which increased property tax collections in the city by $365 million over nine years. Seattle households now pay an average of $144 more per year for the street maintenance proposition.[9]

• Sound Transit, Phase 1
  In 1996, Puget Sound voters approved Sound Move, the first phase of Sound Transit. The plan imposed a ten-year 0.4% sales and use tax increase and a 0.3% Motor Vehicle Excise Tax (MVET) and consisted of a commuter rail service, a regional bus system connecting Pierce, Snohomish and King Counties, and Washington’s first light rail segment. At the time Sound Transit officials said it would cost $3.9 billion (in 1995 dollars) and take 10 years to complete. Sound Transit now says the cost of its first phase is approaching $15 billion (Year of Expenditure) and they will not complete it until 2020.
  
  In addition, Sound Transit officials now say they intend to collect the 0.4% sales tax forever, even after the first phase is complete in 2020.
  
  Generally, each 0.1% sales tax reduces household income about $25 more per year and each .1% MVET equals $17.88 per vehicle.[10] Combining the sales tax and MVET, shows that households currently pay an average of $208 per year for the first phase of Sound Transit.

• Fuel Tax
  Washington drivers must pay both a state and federal per-gallon gas tax when purchasing fuel. The current federal gas tax is 18.4 cents per gallon and the state gas tax (as of July 2007) is 36 cents per gallon. Fuel tax estimates are based on an average of 15,000 miles per year at 22 mpg. The gas tax amounts also assume 2.01 cars per household. This means the average family pays about $745 in annual fuel taxes.

The following table shows the current transportation tax burden for the average household in Pierce, King and Snohomish Counties.

Table 1: Annual Household Transportation Tax Index in King, Pierce and Snohomish Counties [11]

	If you live here...
	King (not Seattle)	Seattle	Pierce	Snohomish (not Everett)	Everett
	You pay these transportation taxes --
Transportation Taxes
Sound Transit, Phase 1	$208	$208	$208	$208	$208
Federal Gas Tax	$252	$252	$252	$252	$252
WA State Gas Tax	$493	$493	$493	$493	$493
Pierce Transit	$0	$0	$150	$0	$0
King County Metro	$225	$225	$0	$0	$0
Snohomish Comm. Transit	$0	$0	$0	$225	$0
Everett Transit System	$0	$0	$0	$0	$150
City of Seattle Prop. 1	$0	$144	$0	$0	$0
Annual Vehicle Registration Fees	$80	$80	$80	$80	$80
Total Annual Tax Burden	$1,259	$1,403	$1,184	$1,259	$1,184

Households in Seattle currently pay the most in transportation taxes, more than $1,400 per year. Pierce County and Everett residents pay the least, with an annual burden of about $1,184 per year. Combining all the current transportation related taxes shows the average households in Pierce, Snohomish and King Counties pay about $1,257 per year.

With an average of 57%, state and federal fuel taxes impose the greatest burden on households throughout the three counties. The state portion of the fuel tax represents between 34% and 41% of the overall transportation tax burden, while the federal portion is between 18% and 21%.

Another significant taxing area is funding for public transportation. On average, transit represents about 32% of a family's overall tax burden.

Rounding out the field of transportation taxes is the annual vehicle registration fee, which represents between 6% and 7% of a household’s transportation tax index.

These distributions can be seen in more detail in the appendix of this Policy Brief.

If voters approve the ST2/RTID tax package this November, these transportation tax burdens would increase substantially. The following table compares the current annual transportation tax burden with the proposed increases from RTID and ST2.

Table 2: Comparing Current Transportation Taxes with Proposed ST2/RTID Package, by Household

	King (not Seattle)	Seattle	Pierce	Snohomish (not Everett)	Everett
Transportation Taxes
ST2/RTID -- proposed	$286	$286	$286	$286	$286
Current Transportation Tax Burden	$1,259	$1,403	$1,184	$1,259	$1,184
..
Total Proposed Tax Burden	$1,545	$1,689	$1,470	$1,545	$1,470
Percentage Increase	23%	20%	24%	23%	24%

On average, every household in Pierce, King and Snohomish County would experience a 22% increase in annual transportation taxes. Pierce County and Everett households would see the largest percentage increase, with 24%, and Seattle residents would see the lowest percentage increase, 20%.

Conclusion

Defining how much households currently pay in transportation taxes builds the context needed for taxpayers to evaluate the impact of the proposed RTID/ST2 package in November. With an average transportation tax increase of 22% per household or an additional $286 per year, residents, for the first time ever, now have the financial context to decide for themselves how the proposal stacks up.

Appendix

---

[1] RTID and ST2 costs are Year of Expenditure estimates and do include debt service.

[2] dor.wa.gov/docs/reports/2006/Compare06/Table10.pdf

[3] Each .1% sales tax equals $25 per household. RTID calculates $80 for every $10,000 of the vehicle's worth. RTID also calculates the average value of all vehicles in the tri-county region is $8,500. This translates to $68 per vehicle at the average value.

[4] http://www.rtid.org/blueprint.html

[5] RTID estimates a household tax burden based on the assumption of one vehicle per household. According to a report from the WSDOT, Travel Indicators and Trends in Washington State, data collected from the National Household Travel Survey (NHTS) indicates that the Washington State household vehicle ownership rate in 2001 was 2.01. Consequently, this Policy Brief assumes a household vehicle ownership rate of 2.01.

[6] The sales tax calculation is the generally accepted model for public agencies and is the same assumption adopted by the RTID, Sound Transit and King County for their financial estimates.

[7] http://www.dol.wa.gov/vehicleregistration/fees.html

[8] It should also be noted that most households pay the MVET in combination with their vehicle registration fees. So car tabs will appear larger than the average of $40 per vehicle listed here. This Policy Brief does include the MVET, but only in combination with the agencies that impose it.

[9] A $400,000 home in Seattle would have an increased property tax burden of $144 annually.

[10] The sales tax calculation is the generally accepted model and is the same assumption adopted by the RTID, Sound Transit and King County for their financial estimates. The MVET calculation is based on RTID’s estimates in its Blueprint for Progress; RTID calculates $143 in MVET for each vehicle owned. As a result, using the average value of a vehicle, each .1% of MVET translates to $17.88 per vehicle. Also assume 2.01 cars per household.

[11] The total transportation amounts do not include local taxes (except for Seattle's recently voter-approved road maintenance proposition) or various other state fees. The taxes and fees were chosen based on whether they could be accurately measured and if they had a consistent or annual effect on a household budget.

Governor Lowry's 1993 Transportation Plan

WASHINGTON

RESEARCH

COUNCIL



POLICY

BRIEF



April 13, 1993



Governor's transportation plan: the cost factor

Gov. Lowry has proposed $937 mil-

lion in tax and fee increases over the

next two years to pay for a broad

range of transportation improvements.

The economic impact of this plan must

be taken into consideration. The plan



Overview

would raise fuel taxes to among the

highest in the nation. Heavy new costs

on motor carriers could result in lower,

rather than higher, state revenue collec-

tions, higher costs for some goods and

services and a loss of businesses. The

governor's proposal to apply the sales

tax to gasoline also raises concerns

about constitutionality and the integ-

rity of the state's transportation fund.



W

ashington motorists may be

looking at a 2 2 cent per

plan are to provide jobs for the state

economy and to solve current and future

Vancouver, Washington.

o Improving rural roads, particularly in



gallon increase at the gas pump if the

governor's transportation plan is ap-

proved. In his "Keep Washington Mov-

ing Plan," released on March 22, Gov.

Mike Lowry proposed a comprehensive

tax package and fee increases to pay for

an ambitious list of transportation projects

in the state.

The financing plan includes a 12 cent

increase in the gas tax over the next

three years, a redefinition of retail sales

subject to the sales tax to include gaso-

line, and an increase in trucking fees.

The governor projects that approving

the program would raise $937 million in

state revenue in the next two years.

Motor carriers would also be looking

at increases in fees and taxes that would

translate to some of the highest in the

nation. This could result in reduced fuel

purchases in Washington state, as op-

erators are induced by high prices to

purchase fuel in other states. Other eco-

nomic effects would include shifts by

businesses to other means of delivering

goods, and potential loss of businesses

especially sensitive to transportation

costs. Tax collections could also be af-

fected if higher taxes and fees encour-

age tax avoidance by motor carriers.

Program Goals

The stated purposes of Gov. Lowry's



transportation problems. The Puget

Sound area has the fifth worst traffic

problems in the country, behind Los

Angeles, San Francisco, Miami and

Washington, D.C. According to the gov-

ernor, traffic congestion costs Washing-

ton businesses more than $1 billion a

year in lost productivity due to delays in

delivering goods, services and people.

The Washington state Department of

Transportation anticipates an additional

increase of 67 percent in miles driven on

Washington highways from 1991 and

2012. "Arterials are like arteries," said

Lowry when he submitted his proposal.

"What we have is cholesterol coming."

Lowry's plan proposes to fund projects

across the state that would "aid com-

merce, create jobs and move commut-

ers more effectively." The projects envi-

sioned include:

o Providing matching state dollars for regional transit projects. These include a bus-and-rail transit plan in the Puget Sound area, costing about $9.3 billion, and the expansion of the Portland MAX system to Vancouver.

o Accelerating construction and completion of the state's high-occupancy vehicle (HOV) lanes.

o Upgrading AMTRAK's rail beds be-

tween Vancouver, British Columbia and



eastern Washington, to help agricultural

products reach the market.

o Repairing the First Avenue South Bridge in Seattle and Highway 18 be-

tween Auburn and I-90 in East King County, and improving Spokane's North-

South bypass.

o Maintaining and upgrading existing highways, roads and streets.

Financing Sources

The governor proposes three main sources at the state level to pay for the plan, raising about $922 million in the next biennium.

o Increase the gas tax 5 cents per

gallon in fiscal year (FY) 1994 and an-

other 5 cents in FY 1995. This would

bring in an estimated $370 million in the

next two years. An additional 2 cents per

gallon gas tax would be levied between

July 1, 1997 and June 30, 2003.

o Extend the state's 6.5 percent sales

tax to include all motor vehicle fuels.

This would raise an estimated $465 mil-

lion.

o Raise combined license fees on

trucks to generate about $87 million.

Cities and counties would be autho-

rized to extend their local-option sales

taxes to fuel sales. (Local taxes include

a 0.5 percent sales tax in the City of



906 S. Columbia, Suite 350 o Olympia, WA 98501 o (206) 357-6643 o 1-800-445-1086 o FAX (206) 754-2193

Page 2 April 13, 1993

Seattle and a 0.5 percent tax in King County.) This would raise an additional $87 million.

In order to receive matching funds for their regional transportation plans, vot-

ers in King, Pierce and Snohomish coun-

ties and cities must first approve an increase of 0.4 percent in their lo-

cal-option sales tax.

Constitutional issues raised

Concerns have also been raised about

the prudence of earmarking sales tax

revenue to transportation purposes, as

the governor proposes to do. Amend-

ment 18 to the Washington Constitution,

adopted in 1943, requires that all mon-

WASHINGTON RESEARCH COUNCIL

highest among the 50 states. Ahead of

Washington were Rhode Island and

Connecticut at 26 cents each, Maryland

at 23.5 cents and Nebraska at 23.4

cents.

Washington's tax on diesel fuel is 10th

highest in the nation, below New York

(33.7 cents), Pennsylvania (28.4

cents), Illinois (27.6 cents), Indi-



"The cost is substantial," Lowry

acknowledged, "but not nearly as much as if we don't do it."

Not everyone agrees. Rep.

Jeannette Wood (R-Woodway ), a

member of the House Transporta-

tion Committee, said, "Many of the

projects that would be funded by

the gas tax increase are worthy,

but the tax increases that will be



Future budget constraints will invite

attempts to divert the gasoline sales

tax to other programs. . . The integ-

rity of the transportation fund will

be constantly at risk.



ana (27 cents), Vermont and

Rhode Island (26 cents), Ne-

vada (24.5 cents), Ohio (24

cents) and Nebraska (23 .8

cents).

Fuel prices would rise sharply

If the transportation plan were

to pass, Washington state would

have the highest gas tax in the



proposed, taken together, are just too

much for Washingtonians to afford."

Some eastern Washington legislators

argued that they already pay higher gas

prices and have a higher driver/popula-

tion ratio than western Washington, and

will therefore be harder hit by increases

in the gas tax.

Rep. Tim Sheldon (D-Hoodsport) ex-

pressed concern to the governor at a March 22 Transportation Commit-

tee hearing that rural families would

be hit harder than urban dwellers.



ies from motor vehicle fees and excise

taxes on motor vehicle fuel be "placed in

a special fund to be used exclusively for

highway purposes." The governor hopes

to avoid a conflict with the legal ban on

using money in this fund for other than

highway purposes by depending on new

sales taxes on gasoline, rather than

constitutionally protected motor vehicle

fees and fuel taxes, to pay for public

transit projects.



nation at 45 cents per gallon. It would

also join eight other states that tax motor

vehicle fuel under the sales tax.

The total tax increase for the ordinary

motorist would be 22 cents per gallon.

The higher gas tax would account for 12

cents of the increase. The other 10 cents,

based on an estimated FY 1993 gaso-

line price of $1.25 per gallon, would

accrue from the extension of the sales

tax at both the state and local levels to

gasoline.

The Washington Department



His constituents, he said, tend to

drive pick-up trucks and travel ru-

ral roads, resulting in poorer gas

mileage and higher costs than for

those who own economical cars

and do most of their driving on the

freeway. Rep. Sheldon said these



Total combined trucking fees and of Transportation projects that

the average gasoline price of all

taxes of $7,271 currently place Wash- grades and services in FY 94

will be $1.30. Gov. Lowry's plan

ington 6th highest in the nation. would raise gas prices to $1.53

per gallon when his proposed

12-cent gas tax increase is



costs could potentially amount to $600

annually, a large burden on low-income families.

A February report by the Washington,

D.C.-based Tax Foundation, "The Price

of Mobility: Gasoline Taxes in America,"

found, after analyzing current federal

and state gasoline tax burdens on indi-

viduals over a range of income brackets,

that "the gasoline tax hits poor and

middle-income Americans the hardest."

Families with incomes under $10,000,

according to the report, pay 3.21 percent

of their total income in federal and state

gasoline taxes, while those earning more

than $200,000 pay only 0.17 percent of

their income.



This tool, however, is a double-edged

sword. If the new sales tax is not consti-

tutionally restricted to highway uses, it

cannot truly be restricted to transporta-

tion uses either. Future budget con-

straints will invite attempts to divert the

gasoline sales tax to other programs,

just as interest in the state transportation

fund will be shifted to the general fund

this year to help close a projected deficit.

The integrity of the transportation fund

will be constantly at risk, and state funds

for local transportation projects con-

stantly in doubt.

How Washington compares now

As of January 1992, Washington's 23

cents/gallon tax on gasoline ranked fifth



added to King County's 8.2 percent state

and local sales tax.

That estimate excludes any increase in the federal gas tax, which stands now at 14 cents per gallon. President Clinton's proposed energy tax would add an esti-

mated 7.5 cents per gallon, boosting the price at the pump to $1.62 per gallon.

Consumers of diesel fuel would see

an increase of 44.1 cents per gallon under the governor's plan.

Costs to Motor Carriers

Under current law, any Washington

state licensed truck or tractor-trailer rig

exceeding 6,000 pounds empty scale

weight must pay a gross vehicle weight

(GVW) license registration fee. The

WASHINGTON RESEARCH COUNCIL

trucker must pay an additional annual

2.2 percent excise tax levied on the

value of the vehicle and a trailer registra-

tion fee as well. According to data com-

piled by the Paragon consulting firm for

the Research Council, Washington reg-

istration and weight fees for an 80,000

pound truck are currently $3,585. This

compares to fees of $2,951 in California,

$132 in Idaho and $320 in Oregon. (Idaho

and Oregon do not have weight fees).

Gov. Lowry's transportation proposal

would increase GVW fees by 50 per-

cent. The current GVW fee of $1,158

would increase $ 7 5 9 , raising

Washington's total registration and weight fees to $4,344.

Total combined trucking fees and taxes

of $7,271 currently place Washington

6th highest in the nation, behind Ari-

zona, Oregon, New York, Kentucky and

Montana. According to Paragon, the to-

tal tax and fee burden on Washington

motor carriers is roughly equivalent to

those in Idaho ($7,084) and California

($6,933). The average Washington

trucker, however, would be looking at an

increase of 57 percent if the governor's

proposal were adopted. This increase

April 13 1993 Page 3

Comparative Diesel Fuel Tax Rates

as of March 1993

State Retail Sales Tax Total State

Deisel Fuel Tax on Diesel Fuel Diesel Fuel Tax

(Cents per gallon) (Percent) (Cents per gallon)

Washington 23 None 23

Idaho 21 None 21

California 17 8.5% = 8.7 Cents1 2 25.7

Oregon None3 None3 None3

1 Based upon diesel price of $0.817 (Average pump-price of $1.248 per gallon, less $0.201 federal fuel tax and $0.23 state fuel tax).

2 California state sales tax of 5% plus 3.5% local-option "transaction tax" levied by larger cities such as San Francisco. This tax is not levied as a "use-tax."

3 Oregon levies a ton/mile tax based upon weight. A 5 axle tractor plus trailer rig with an average

weight of 80,000 pounds would pay 14.55 cents per mile. Additional axles reduce the levy.

Additional weight, in 2,000 lb. increments, increases the levy. With an average 6-miles-per-gallon

fuel efficiency, the Oregon ton/mile tax is equivalent to a gas tax of 87.3 cents per gallon of fuel

consumed.

scale could reduce the competitiveness motor carriers and fuel tax collections by

of smaller trucking companies. the state are likely to decline if the addi-

According to Paragon, tional fees and taxes proposed by the

Small carriers typically buy fuel from a governor are adopted. There are at least

retailer, such as a key-card fuel depot four reasons for the projected decrease.

or truck stop. Larger motor carriers buy Tax avoidance. Interstate motor carri-

wholesale fuel directly from jobbers who ers pay the state's motor carrier fuel use

deliver larger volumes of fuel to the tax under a system of self-reporting.

carrier's privately-owned and operated



translates to a total of $11,399, slightly

less than Oregon's $11,960, now 2nd highest in the nation.

Paragon notes that estimates of total taxes and fees may vary depending on the source. The fuel tax is generally calculated on a national fuel consump-

tion figure of 5.7 miles per gallon.

Washington's figures, however, are usu-

ally based on a 5.0 miles per gallon figure, due to the high number of logging trucks operating on back roads rather than interstate highways, where mile-

age is somewhat better.

An increase in fees and taxes on this



fuel depot. The pump price paid by a

small carrier at a truck stop can be up to

20 cents per gallon greater than the

volume wholesale price paid by large

motor carriers. With such a price dis-

parity, a small carrier with only 10 five-

axle tractor-trailer rigs (logging 80,000

miles annually) will pay $2,634 more

annually in retail sales tax on fuel pur-

chases. Under the traditional cents-

per-gallon motor vehicle fuel tax, both

the small and large carrier, when buy-

ing equal amounts of fuel, would have

paid an equal amount in taxes.

Economic Impacts

In-state sales of goods and services to



Operators are required to record and

report fuel purchases and miles traveled within Washington. On the basis of these reports, the fuel use tax is then com-

puted at a rate of 23 cents per gallon, and paid quarterly to the state Depart-

ment of Licensing.

Washington state is also a party to the

International Fuel Tax Agreement (IFTA).

Under this system interstate carriers reg-

ister in their "base," or home, states, and

report all interstate mileage and diesel

fuel usage, as well as taxes paid at the

pump in various states, to their base

states. Each base state then redistrib-



Tax & Fee Burdens for Typical Motor Carrier



MVET/REG Tonnage Other State Sales Tax Weight-Dis- Total Price



or License Fuel Taxes on Fuel tance Tax per Mile



Current Washington $2,067 $1,518 $6.75 $3,680 - - $7,272 0.0909



Proposed Washington $2,067 $2,277 $6.75 $5,280 $1,769 - $11,399 0.1425



Idaho $132 - - $3,360 - $3,592 $7,084 0.0886



California $1,522 $1,429 - $2,720 $1,262 - $6,933 0.0867



Oregon $320 - - - - $11,640 $11,960 0.1495

Page 4 April 13, 1993 WASHINGTON RESEARCH COUNCIL

utes tax revenues to other IFTA-mem- their revenue bases by attracting con- for trucks to travel through the state to



ber states according to the actual mile-

age traveled in each state.

Based on experience in other states, the collection rate for these self-reported taxes is likely to drop as the tax

rate increases. A high differential

between fuel taxes in Washing-

ton and in neighboring states in-



sumers from bordering states. "The rev- reach other states. Uncompetitively high

enue gains achieved by a state with low trucking fees and taxes, combined with

excise taxes," Price Waterhouse said, high fuel taxes, may deter new business

"necessarily come at the expense of the from locating in the state, or cause exist-

ing employers to leave for lower-

cost locations.

Based on experiences in other

Sources



creases the incentives for motor

carrier operators to "cheat" the

system by failing to make accu-

rate reports of miles traveled and

fuel purchased in the state. It also

substantially increases the incen-



states, the collection rate for self-

reported taxes is likely to drop as

the tax rate increases.



Advisory Commission on Intergovern-

mental Relations. 1992 Significant Fea-

tures of Fiscal Federalism. Volume 1. Feb-

ruary 1992.

American Legislative Exchange Coun-

cil, "Voting with Their Feet." The State

Factor. 18:11, August 1992.



tive for trucks to fill up in another state,

such as Idaho, and transport freight through Washington without ever buy-

ing fuel here.

The loss of fuel tax revenue to the

state is only the first result of this tax

avoidance practice. It would also result

in a considerable loss to truck stop op-

erators in sales of ancillary products

such as cigarettes, snacks and meals,

and to the state in sales tax revenue.

One eastern Washington operator re-

ports that he sells about 20 cents of

these products to truckers for every gal-

lon of fuel that they purchase.

The Connecticut legislature rolled back

that state's high diesel fuel tax in 1991

after reports from truck stop operators

that they were losing business to com-

petitors in the three bordering states

because of the differentials in fuel prices.

A consultant has reported to the Con-

necticut General Assembly that "after

the decrease of diesel fuel taxes from 22

cents per gallon to 18 cents. . . sales at

truck stops on the major highways have



states that have increased their tax rates

in order to raise more revenue."

Although the effect can be expected

to be greater in New England, where

mileage between state borders is so

much shorter, the long-distance fuel

capacity of interstate motor carriers

makes it likely that higher prices would

mean lower consumption of fuel here as

well.

Shifts to other modes of delivery.

Higher fees and taxes will be passed on

to the consumer through higher trans-

portation costs. Some companies may

find it more cost-effective to ship their

goods through air and rail freight rather

than motor carriers.

Loss of new business. Washington

state is geographically disadvantaged.

Businesses need not locate within the

state if the state is not the primary source

of raw materials or the primary market

for finished products. Nor is it necessary



Elaine Ramel Davis and Steve Excell, Para-

gon, "An Economic Assessment of Governor

Lowry's Gas Tax Increase and New Sales Tax on

Gas." (Unpublished manuscript.) March 31, 1993.

Gov. Mike Lowry, "Lowry Proposes to Keep

Washington Moving," March 22, 1993.

State of Washington. Department of Transpor-

tation, Transportation Commission. "Statewide Transportation Systems Plan: Draft Service Ob-

jectives." Fall 1992.

The Tax Foundation, "New Foundation Report Traces Gasoline Excise Tax Collections," Tax Features, February 1993.

Rep. Jeanette Wood, "'Lowry Tax Week' be-

gins with Gas Tax Increase," March 22, 1993.

The Washington Research Council is a non-profit, non-governmental research or-

ganization. Its mission is to promote efficient government and effective public policy through independent fiscal analysis of im-

portant policy questions and broad commu-

nication of its findings.

The Washington Trucking Associations,

Inc., provided partial funding for this study.



increased, generating additional sales

tax revenue in excess of $1 million."

Reduced demand. As with most goods



Comparative Registration & Weight Fees

for an 80,000 lb Truck



and services, as fuel prices rise, con-

sumption is likely to decrease.

A February 1993 study by Price

Waterhouse conducted for the Ameri-

can Legislative Exchange Council found

"significant cross-border activity" in items

subject to state excise taxes (including

Washington

Idaho

California

Oregon



Current Registration

and GVW Fees

$3,5851

$1322

$2,9513

$3204



cigarette, alcoholic beverage and gaso-

line taxes) in the New England states as

a result of tax disparities . Price

Waterhouse determined that states that

maintain low excise taxes can increase

1 $3,585 includes 2.2% annual excise tax on truck valuation, $42.75 in trailer registration fees

and $1,518 gross vehicle weight (GVW) licensing fees. The governor's 50% increase applies to only the $1,518 GVW fee. 2 License fee with no weight fee. 3 License fee of $1,522 and GVW

fee of $1,429. 4 License fee with no weight fee.

Holder 4

taxes