Connecticut’s truck tax continues to fall short

Connecticut’s truck tax continues to underwhelm, falling $25 million short of estimated revenue from 2021 when the tax – called the Highway Use Tax (HUT) – was passed by the General Assembly along a party-line vote and over the protestations of Connecticut truckers.

The HUT was passed following the defeat of Gov. Lamont’s numerous tolling proposals for Connecticut highways, and supporters argued the tax was necessary to bolster the struggling Special Transportation Fund (STF) that pays for Connecticut’s transportation infrastructure and public transportation. The tax is based on the truck’s weight and the number of miles it travels in Connecticut.

At the time of passage, it was estimated the HUT would bring in $90 million by fiscal year 2024 and nearly $100 million by 2026. Those figures, however, have been adjusted downward by roughly $25 million to $30 million for the 2024 fiscal year, according to the latest Fiscal Accountability Report from the nonpartisan Office of Fiscal Analysis (OFA).

According to OFA, the HUT is now expected to bring in $65 million over the course of FY 2024 and $67.6 million in 2026. By fiscal year 2028, the tax is projected to bring in only $70 million, roughly $30 million less than earlier projections and taking years longer than previously expected to ramp up.

OFA wrote the HUT was adjusted downward by $25 million for 2024, “to reflect lower than expected collections.”

“As HUT is still in its relative infancy, its long-term outlook and growth rates are less certain at this point compared to more established tax streams,” the Fiscal Accountability Report says. “The downward adjustment for HUT is partly offset by higher than expected collections for motor vehicle registration and related fees as well as for interest income.”

John Blair, president of the Motor Transport Association of Connecticut (MTAC), which represents Connecticut trucking companies and truckers, says the lower revenue is what his organization warned about when the legislation was passed.

“From day one we as an organization at MTAC have said we expect this thing to underperform because the out of state carriers are not going to pay their fair share, or at all,” Blair said. “I believe if we dug into the numbers, it would bear out that in-state carriers are carrying the majority of the dollars that come into the state.”

“Because there’s no enforcement mechanism around it, the out of state carriers are unlikely to pay the same amount of tax,” Blair continued. 

There currently exists no way to enforce the tax other than trucking companies self-reporting their weights and miles, something the trucking industry has long said leaves similar taxes in other states struggling to meet expectations. During the 2023 session, the General Assembly voted to require only quarterly HUT taxes rather than monthly, which was an administrative relief for trucking companies in Connecticut, Blair said, but the tax remains cumbersome for trucking companies.

“This regulatory scheme is so complicated, from the quarterly filings to tracking miles on a daily basis, I also believe that affects the overall revenue collection because it’s very difficult to keep track and it’s an administrative burden,” Blair said.

Republicans who opposed the tax have unsuccessfully tried in years since to roll it back, even forcing a public hearing on repealing the tax before the Transportation Committee in 2023.

While the expected revenue from HUT is lower than anticipated, the overall trajectory of the Special Transportation Fund remains positive, for now. According to OFA’s report, the fund will start to see deficits in 2027 as expenses begin to outpace revenue. However, the fund has also built up its largest cumulative balance in history at $681.7 million. That balance is expected to grow to more than $1 billion by 2026, just as the shortfalls are expected the following year.

Much of that growth is due to the transfer of sales tax revenue into the STF, a tax that has seen increasing revenue for Connecticut, particularly during periods of high inflation. The OFA warns, however, that fuel taxes, which show a slight decline, could fall further if the state begins to phase out the sale of gasoline powered cars.

“Conversely, fuel tax growth is projected to be negative through FY 28 as vehicles become more fuel efficient and oil prices fall from recent highs,” the OFA report says. “Furthermore, the state is pursuing longer term goals that are expected to reduce fuel tax collections, including various strategies to increase the adoption of electric vehicles and to reduce vehicle miles traveled.” 

Overall, according to the report, Connecticut is expected to see lower surpluses due to declining revenue from Wall Street, business taxes and sales tax revenue, but continue its current run of taking in more revenue than it is paying out due to declining expenditures, resulting in balanced budgets.

The report did warn, however, that OFA’s report methodology “does not allow for growth in non-fixed cost expenditures or the consideration of other potential budgetary pressure, such as potential ongoing expenditures previously funded through temporary resources such as American Rescue Plan or carryforward funds. Therefore, the out-year balances should not be considered annual surpluses.”