The California State Board of Equalization (BOE) will consider lowering the excise tax rate for gasoline by 2.2 cents for Fiscal Year (FY) 2016-17 during its February 23, 2016 meeting in Culver City. If adopted, the excise tax rate on gas will be 27.8 cents per gallon from July 1, 2016 through June 30, 2017. The current excise tax rate of 30 cents per gallon remains in effect until June 30, 2016.
California drivers pay two types of state taxes on gas: sales tax, which is a percentage of the price and a per-gallon excise tax. Before AB x8 6 and SB 70—collectively referred to as the “fuel tax swap”—took effect in 2010, drivers paid the full sales tax rate (then 8.25 percent), and an excise tax rate of 18 cents per gallon. The fuel tax swap lowered the sales tax rate on gasoline to 2.25 percent and requires the BOE to set a per-gallon excise tax rate annually before March 1.
“What is probably most important to California drivers is the fact that this excise tax rate is calculated such that drivers still pay the same amount in overall taxes at the pump that they would have paid before the swap,” said BOE Chairman Jerome Horton.
In FY 2014-15, the BOE collected nearly $5.4 billion in excise tax for the state’s Motor Vehicle Fuel Account, which helps pay for highways, roads, and other public transportation projects. The sales tax on gasoline also helps fund a variety of state and local road programs.
How the rate is determined
The excise tax rate takes into account a number of factors including: projected gas price, forecasted amount of gallons sold, sales tax revenue that would have been collected prior to the fuel tax swap, and tax revenue over- or under-collected in the prior fiscal year. The rate ensures that over a three-year period, motorists do not pay more or less in overall gas taxes than they would have prior to the swap.
Learn more about the history of the fuel tax swap here, and watch this video demonstration of how the calculation works.