North Carolina’s Gas Tax Reduction May Eventually Be an Increase

N.C. drops state gas tax by one cent, no longer tying tax to wholesale prices.

April 06, 2015

RALEIGH, N.C. – Starting last week, North Carolina saw the first in a series of reductions in the state gas tax, one of the highest in the nation at 37.5 cents per gallon.

The bill, voted on just a day before its April 1 implementation, establishes a gas tax cut of 1.5 cents beginning April 1, with subsequent cuts of one cent occurring in January and July 2016, eventually bringing down the state tax to 34 cents.

Legislators and the governor say that the bill is meant to stabilize the tax, which has been tied to wholesale prices, so the state can guarantee a consistent amount of funding to support road maintenance. If the state’s current law was left unchanged, the tax would likely fall by nearly 8 cents a gallon in July.

The legislation will also replace a formula that moves the rate up or down every six months to reflect changes in wholesale fuel prices, which have plunged since late 2014. Starting in 2017, a new formula will adjust the tax rate just once a year, based on changes in two measures: North Carolina’s steadily growing population gets a 75% weight in the calculation, and the national price index for energy costs gets 25%.

So after the gas tax falls to 34 cents at the end of 2016, state economists expect that it will start climbing slowly again in 2017, at an average of 2.3% a year.