Fuel tax collection is a topic of discussion at multiple statehouses. One state has acted on the issue, and other states are moving toward making changes.
Mississippi
Mississippi Gov. Tate Reeves signed into law a massive tax overhaul bill that includes elimination of the state’s income tax. The new law includes a provision to increase fuel tax collection.
The state collects an 18-cent excise tax on fuel purchases.
Previously HB1, the new law will increase the tax on gas and diesel by 9 cents per gallon over multiple years.
A 3-cent rate increase will kick in July 1. Additional increases will be implemented each July through 2027. At that time, the fuel tax rate will reach 27 cents.
The Mississippi Department of Transportation will receive the bulk of the additional fuel tax revenue – 74%. The State Aid Road Fund will get 23.25% of tax revenue, with the state’s multi-modal fund getting the rest.
The new law also includes a provision to adjust the fuel tax rates every other year based on the percentage change in the yearly average of the National Highway Construction Cost Index. The adjustments will begin in 2029. The maximum increase at one time could be one penny.
The passage of HB1 is indeed “a defining moment in Mississippi’s history.” https://t.co/kKlIL696dm
— Governor Tate Reeves (@tatereeves) March 24, 2025
Michigan
Michigan House lawmakers approved a $3.1 billion, nine-bill transportation funding package that includes language to eliminate the sales tax collected on fuel purchases.
Truck drivers and motorists fueling in the state pay a 31-cent state excise tax. Tax rates are adjusted each January.
There is also a 6% state sales tax on every gallon of fuel sold. Much of the sales tax revenue is diverted away from transportation for other purposes.
The Republican-led bill package would replace the sales tax with an equivalent increase in the fuel tax. The distinction would enable the state to apply all fuel tax revenue for transportation purposes.
Another change would increase the fuel tax rate starting Oct. 1. At that time, the gas and diesel rates would increase to 51 cents.
Additionally, the taxes would be adjusted for inflation on Jan. 1, 2026, but the adjustment increment would be based on the average of the tax rates in effect during 2025.
Gov. Gretchen Whitmer has her own $3 billion transportation-funding plan. Like the one in the House, the Democratic governor’s plan would ensure that all state fuel tax revenue is applied to roads.
Missouri
One bill halfway through the Missouri statehouse includes a provision about fuel tax collection.
A 2021 state law authorized an increase to the then-17-cent fuel tax over multiple years. Since then, the excise tax on gas and diesel purchases has been raised four times at 2.5-cent increments to 27 cents.
The final 2.5-cent increase is scheduled to take effect July 1. At that time, the fuel tax rate will reach 29.5 cents.
House lawmakers approved a 76-page bill that would require the Missouri DOT to include in its annual report to the governor and lieutenant governor all of the agency’s internal and external expenditures.
For each fiscal year the department’s internal expenditures exceed 20% of total expenditures, the bill mandates the state’s fuel tax rate be reduced by one-half cent for the following fiscal year.
The rate could be decreased by a maximum amount of 1.5 cents below the 29.5-cent rate slated to take effect this summer. Therefore, the fuel tax rate could be trimmed to as low as 28 cents.
In any fiscal year following a rate reduction, if the department’s internal expenditures are below 20% of total expenditures, the fuel tax rate would be increased by a half-cent the following fiscal year or back to the authorized 29.5-cent rate, whichever is less.
A bill analysis reports that internal expenditures at MoDOT were greater than 20% once from fiscal year 2020 through fiscal year 2023.
Supporters have said it is necessary to include guardrails to help ensure a proper proportion of funding is going to scheduled spending, such as Interstate 70 widening from the Kansas City area to the St. Louis area.
The bill, HB572, is in the Senate Transportation, Infrastructure and Public Safety Committee.
Oregon
In Oregon, statehouse Democrats unveiled a transportation budget framework that would raise more than $1.9 billion every two years in new taxes and fees.
A year ago, the Oregon DOT warned that without a radical funding fix in place by 2027, the state will be forced to go without repairs to any roads that are not a federal interstate. At the time, the agency said, an additional $1.8 billion annually will be necessary just to make repairs.
Additionally, a study from the Association of Oregon Counties showed that the state needs $834 million annually to maintain local roads and bridges.
The framework calls for an increase to the state’s 40-cent gas tax rate. A 20-cent increase would be phased in over six years.
After the gas tax increase is fully implemented, the rate would be indexed to inflation to “ensure future solvency of the revenue stream.”
The state’s weight-mile tax would also increase by 16.9%.
Another change would reclassify diesel fuel as motor vehicle fuel. The switch is intended to “simplify weight-mile rates to reduce weight-mile tax evasion and alleviate administrative burdens on trucking companies.”
Vehicle registration fees and titling fees would also increase.
All vehicle tax and fee increases would raise $1.5 billion per biennium.
Washington
Washington House and Senate lawmakers are moving forward with gas and diesel tax rate increases.
The Senate voted to approve a $16.2 billion transportation budget that would increase the state’s 49.4-cent fuel tax by 6 cents per gallon to 55.4 cents.
Beginning July 2026, an inflationary adjustment would also be implemented. The change would authorize a 2% fuel tax increase on an annual basis.
Electric and hybrid vehicles would also pay more fees. Additionally, certain luxury vehicles would have a new tax charged.
Supporters have said the increases are needed to help the state address a $1 billion budget shortfall.
On the House side, legislators are considering a $15.2 billion plan. The budget proposal includes a possible 9-cent fuel tax increase and an indexing component.
Other revenue measures in the House plan include a new highway use fee, which would be based on fuel efficiency, and an increase in the sales tax on most vehicles.
The highway use fee would be implemented in July 2026. The fee would be paid at registration by passenger vehicles with a fuel economy of at least 25 miles per gallon and with a weight of up to 10,000 pounds.
Rhode Island
It is a slow-go for a Rhode Island bill that calls for making an adjustment for inflation on the state’s fuel excise tax.
The state’s Division of Taxation makes an adjustment to the tax every other July 1. The adjustment is based on the inflation that occurred the previous year.
S47 would revise the rule to make the adjustment every two years based on the inflation that occurred in the previous two years.
The current 37-cent fuel tax rate is scheduled to increase by a penny to 38 cents on July 1.
Advocates have said the one-year look back results in the fuel tax not keeping pace with inflation. They’ve pointed out that making the change provided in the legislation would have resulted in the upcoming adjustment being 42 cents per gallon instead of 38 cents.
The bill remains in committee. LL
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