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@NCCapitol

Lawmakers give tentative approval to gas tax revamp

Posted March 30, 2015
Updated March 31, 2015

— The state House and Senate gave tentative approval on Monday to a bill that would drop the state's gas tax by 1.5 cents per gallon, with leaders in both chambers saying they needed to ensure the short-term stability of North Carolina's primary source of state funds for road construction.

Both chambers need to take a final vote on Tuesday before the measure heads to Gov. Pat McCrory, who has said he will sign the bill.

"It provides immediate relief for all North Carolina drivers as we pursue transportation funding reform," Sen. Bill Rabon, R-Brunswick, said Monday night.

Beyond Rabon's brief introductory remarks, the Senate did not debate the bill before tentatively approving it 40-9.

North Carolina's current gas tax is 37.5 cents per gallon, meaning Senate Bill 20 will save drivers about 23 cents on a 15-gallon fill up starting Wednesday and running through the remainder of the calendar year. The current gas tax rate is derived from a formula based largely on the wholesale price of gasoline. When wholesale prices go up, the tax has gone up. When they drop, the price goes down.

North Carolina and the rest of the nation have seen months of relatively low gas prices, which meant that, if lawmakers had done nothing, the gas tax would have dropped to 30 cents per gallon this summer. While drivers may have been happy to see that fall off at the pump, lawmakers said they would have been less than pleased with the fall off in road repairs and expansions.

Opposition focused on mortgage provision

While there was virtually no debate in the Senate, much of the discussion in the House didn't focus on the gas tax itself.

In addition to affecting what people pay at the pump, the bill also contains a set of tweaks to the the state's income tax. These internal revenue update provisions are designed to make North Carolina's tax law work with the federal tax law.

One of the changes dealing with mortgage forgiveness has been particularly contentious.

There are several programs that help people who have problems paying their mortgages. Several of those programs forgive a large part of the debt people owe on their first house.

Federal tax law does not treat the forgiven debt as income for 2014. However, North Carolina will, meaning those who have recently lost their homes due to the inability to pay will be charged thousands of dollars in taxes.

"That provision is tantamount to saying we're going to stomp folks while they're down, and then we're going to dance on them," said Rep. Kelly Alexander, D-Mecklenburg.

No member spoke on behalf of this provision during floor debate Monday night. In fact, when the House originally passed Senate Bill 20, it would have excused such payments from income taxes. But when the final bill was negotiated with the Senate, the forgiveness provision was dropped. It would have cost the state roughly $14 million, according to fiscal estimates.

More on gas tax

Lawmakers say the bill they are passing this week is meant to be a stop-gap that will stabilize North Carolina's road building revenue source until a new regime can be put in place. The constant gyrations in gas prices, legislative leaders say, makes the gas tax an unreliable source of long-term revenue.

Under Senate Bill 20, the gas tax would fall to 35 cents per gallon on Jan. 1, 2016, and then to 34 cents per gallon on July 1, 2016. By the end of 2016, lawmakers say, they hope to reach a grand bargain on replacing the gas tax as the primary source of revenue for funding road construction. If they don't reach an agreement, a fail-safe in the bill would begin driving up the gas tax rate again, basing the increases on a formula involving population growth and the consumer price index.

The gas tax raises about $50 million per penny, according to legislative leaders. The money attributed to one-half cent of the tax, or roughly $25 million, goes toward funds for underground storage tank cleanup and air quality programs. Of the remaining money, 75 percent goes to the Highway Fund, which pays for road maintenance, transit, rail, the State Highway Patrol and related programs. The remaining 25 percent goes to the Highway Trust Fund, which is used mainly for the construction of the interstate highway system, although some of the money does go to improvements of secondary roads.

10 Comments

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  • Matt Wood Mar 31, 2015
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    For those of you complaining about the high gas tax... here is an easy solution for you:

    Don't drive. Don't use any roads. The gas taxes go to support the second largest road system in the country. If you think they're bad now, just wait till they have even less funding! Try walking, jogging, riding your bike, but don't drive if you don't want to pay the gas tax!

  • Buford Justice Mar 31, 2015
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    For those of you complaining about the reduction in the gas tax... here is an easy solution for you:

    Each month send a check to the NC Dept. of Transportation. If you want higher taxes you CAN pay them VOLUNTARILY... you don't have to wait for the government to force you. You can do it NOW. YES WE CAN!!!

  • Teresa Engel Mar 31, 2015
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    Great job, NCGA! The party of lower taxes (NOT!) and smaller government (NOT!) strikes again!

  • Arch Maker Mar 31, 2015
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    you are kidding right? I just got back from SC and although I enjoyed the $1.99 gas, the roads were way worse than NC. PLUS NC has the second highest amount of state maintained roads in the nation after Texas - that's why our gas tax is higher than the other states.

  • Mike Jones Mar 31, 2015
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    This only affects working folks , so why would the GA care.

  • Roy Hinkley Mar 31, 2015
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    Your 40 cent savings would have been $2 if the GA took no action and instead allowed the gas tax to drop based on the current formula.

    I am concerned that in the end, they will find a new, more reliable and steady, revenue stream to fund road work but they will also keep the gas tax elevated.

  • Phil Shmoe Mar 31, 2015
    user avatar

    So the average person will save 40 cents a month and our roads will get worse. Durham roads are already terrible.
    I can't wait to save a few pennies at the pump while putting many dollars into alignments and new tires!

  • Namey Names Mar 31, 2015
    user avatar

    Ridiculous... Magically the time it should of dropped to 30 cents, they want to hold it at a higher rate. All the past where it was maxed at 37.5.... It was ok. Regardless... We still pay the highest state gas tax on the region. And have some of the worst roads compared to SC and VA. Not right at all.

  • Matt Wood Mar 31, 2015
    user avatar

    Wow, we all get to save 1.5 cents per gallon, which will be wiped out tomorrow when prices go up again. Meanwhile, our roads will get worse because that 1.5 cents will now be going into the pocket of the gas companies instead of DOT.

  • Phil Larson Mar 30, 2015
    user avatar

    Quick everybody, clinch!