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NC lawmakers turn to sales taxes to boost road funding

The new state budget just signed into law includes extra funding for road repairs and construction. For the first time ever, state lawmakers transferred nearly 200 million dollars in sales tax money to the state transportation department.

Posted Updated

By
Laura Leslie
, WRAL capitol bureau chief
RALEIGH, N.C. — North Carolina's gas tax, currently 38.5 cents per gallon, is the state's main funding source for road construction and repairs. As of 2020, it brought in about $1.8 billion a year.

For decades, the state gas tax generated enough revenue to keep up with funding needs. In the past, lawmakers even transferred money out of the state highway fund into the general fund every year. In 2022, they're finding the money needs to flow the other direction.

The main culprit, aside from rising construction costs, is increasing fuel efficiency. It's great news for climate change, but bad news for gas-tax revenues.

The North Carolina Department of Transportation estimates that the average driver in the state drives 12,000 miles a year in a vehicle that gets 22 miles per gallon. That works out to about 545 gallons every year, so the driver is paying about $210 per year in gas taxes.

Now suppose the driver buys a car that gets 40 miles to the gallon. They drive the same 12,000 miles, but they’re only buying 300 gallons of gas a year, so their annual gas tax contribution is just $116. And if they buy an electric car, they’re not paying any gas taxes at all.

That's one of the main reasons the NC Chamber, a business advocacy group, has been pushing lawmakers for years to invest more in transportation and diversify the funding sources available for it.

"Economies change. Communities are different. So all options have to be on the table," said NC Chamber Chief Executive Gary Salamido. "We've got to make sure our kids can get to school safely on these roads, and that they're maintained on a regular basis. And our truck drivers and our distribution folks; it's important that they get there safely and efficiently so that we can continue to grow jobs in this state."

In the newly enacted budget, for the first time ever, state lawmakers transferred an additional $193 million in sales-tax revenues to the state highway fund. By 2025, that will triple to $600 million a year, and continue at about 6% of annual sales tax in future years.

The NC Chamber was a key backer of the new transfer plan. Salamido said they arrived at 6% of total sales tax revenue because that's roughly the percentage that comes in every year from vehicles and vehicle-related expenses, such as tires and oil changes. He stressed that this is not a new sales tax, just a reallocation of sales taxes already being collected.

"This particular option came up through discussions that we've been having over the last six or seven years," Salamido told WRAL News. "We looked at what that number was, and then just said, 'It's transportation money for transportation needs.' It’s a simple transfer."

He said it's a solid first step to help the state keep up, especially with growing numbers of electric vehicles on the roads.

"There’s a small fee that [electric vehicle owners] pay," Salamido said. "But the subsidy would be much more fair, that everybody who's using the roads pays for the roads and keeps them safe. So as we go more electric, this helps us in a way that staying with the gas tax alone would not."

State lawmakers have also discussed switching from taxing gas sales to taxing vehicle miles traveled, but aside from some pilot programs, those proposals have failed to find much support.

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