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That is, when Governor Tom Corbett signs a $2.5 billion transportation-funding package, which is expected to happen later today (Friday, Nov. 22).
The result will be an increase in fines and fees to drivers for vehicle registrations, inspections and driver’s licenses. In turn, the money generated from this influx of new funding will go toward bridge and road maintenance, mass transit and other transportation projects.
A sizeable portion of the money that will be raised, and a real point of contention, deals with the Oil Company Franchise Tax (hereon referred to as ‘The Tax’). The transportation bill, once signed into law, will remove the cap on The Tax, allowing it to adjust for inflation.
How does that jibe with Gov. Corbett’s no-new-tax-pledge? Corbett says he’s not going back on his pledge by backing the transportation bill, since it’s a cap being removed, not a tax increase. But, while it is true that it’s not a new tax, it’s not the whole story.
Let’s back up a little. In the early 1980’s Pennsylvania decided to place a tax on the wholesale price of fuel. It was a millage tax levied against an artificial floor of 90 cents per gallon and an artificial cap of $1.25.
“The intent was to produce a source of revenue for highways and bridges that would be sensitive to inflation,” said Rich Kirkpatrick, spokesman for the Pennsylvania Department of Transportation in Harrisburg. “For most of the life of the tax it never really moved.”
Sometime after 2000 the wholesale price reached 90-91 cents gallon, and soared past the cap of $1.25 in 2006. The wholesale price of gas is now about $2.92 per gallon.
“So in essence with that cap it never really became sensitive to inflation,” Kirkpatrick said.
Removing the cap allows the wholesale price of gas to “grow as it would in terms of the amount of revenue generated without the cap,” said Andrew Stober, chief of staff for the Mayor’s Office of Transportation and Utilities. In other words, removing the cap allows the tax to increase as the wholesale price increases.
“Essentially we’re modernizing an outdated financing structure,” said Steve Chizmar, deputy director of communications in the governor’s office. Currently in Pennsylvania, we pay about 31.2 cents per gallon of gas and it consists of a flat tax of 12 cents per gallon and wholesale tax of 19.2 cents per gallon, based on the millage formula of 153.5 mills (ten mills equal one penny) on the capped $1.25 per gallon.
With passage of the new transportation-funding bill, the state will drop the flat tax and just rely on the wholesale one. And gas wholesalers and retailers are likely to pass on their increased costs directly to consumers. Under current wholesale pricing, then, the tax we pay at the pump would rise from 31.2 cents per gallon to 44.8 cents, but to avoid sticker shock the increase will phased in over the next five years.
Not a bad yield for just removing a cap.