McDonnell proposal would drop gas tax, raise sales tax

RICHMOND — Virginia Gov. Bob McDonnell proposed a five-year, $3.1 billion transportation funding package Tuesday that would include replacing the state gasoline tax with a sales tax increase of less than a penny on the dollar.

The Republican governor unveiled his plan for roads and transit on the eve of the 2013 General Assembly. If lawmakers approve, Virginia would be the first state to drop its gasoline tax.

Mr. McDonnell said the 17.5 cents per gallon gas tax is no longer a viable revenue source for maintaining and building highways because of inflation and more fuel efficient vehicles. According to the administration, the purchasing power of the gasoline tax has declined by more than half since it was last increased in 1986.

Legislative proposals to further increase the gasoline tax have been repeatedly rejected the last several years.
“The gas tax is a stagnant revenue source, and no changes to it will provide a reliable growth mechanism for transportation in the state,” McDonnell said in a news release.

Sales tax revenues, on the other hand, grow with the economy. Mr. McDonnell’s plan to increase the sales tax by 0.8 percent, with the entire increase dedicated to transportation, would raise an estimated $607 million over five years.

The tax on diesel fuel would remain unchanged because of the extreme wear-and-tear that heavy trucks inflict on Virginia’s highways, the governor said.

Mr. McDonnell also wants to increase the portion of the sales tax already earmarked for transportation. A half-cent of the state’s nickel-on-the-dollar sales tax already goes into the state’s highway fund. The governor’s proposal would increase that commitment by a quarter of a cent over five years, generating an additional $811.5 million over that period.

Democrats historically have opposed proposals to take more of the sales tax for transportation, calling it a raid on public education and other priorities that are financed by the state’s general fund.

The largest single item in Mr. McDonnell’s plan depends on action by Congress. According to the governor, Congress this year is expected to pass legislation giving states authority to collect out-of-state sales taxes.

Taxpayers already are supposed to pay these taxes as a use tax on their income tax returns, but compliance is low.

Mr. McDonnell proposes earmarking a portion of this revenue for transportation, raising just over $1.1 million over five years.

The governor also wants to raise $547 million over five years by increasing vehicle registration fees by $15. An annual $100 fee on alternative fuel vehicles would raise an additional $66.6 million.