State gas tax approved by legislature

Thursday, April 20, 2017
Gov. Bill Haslam
Official state portrait

Gov. Bill Haslam's highway funding package, which increases taxes on gasoline and diesel while lowering the sales tax on groceries as well as other taxes, passed both houses of the Tennessee General Assembly on Wednesday.

The differences between the House and Senate version will have to be worked out in conference committee before a final version of the bill can be approved and sent to Haslam for approval.

State Sen. Jim Tracy and State Rep. Pat Marsh both supported the bill.

Huge backlog

State officials say there is now a $10.5 billion backlog of road and highway projects without funding. Tennessee does not borrow money for state highway projects, relying on gas and diesel tax revenues to fund them. Proponents say this is a fair structure, under which those paying the tax receive the direct benefit from it.

But increased fuel efficiency, combined with the rise of hybrid and electric vehicles, has made the gas tax revenues stagnant, and so Haslam proposed increasing the fuel tax to help pay for the highway projects, combined with tax cuts in other areas.

Critics, however, denied that the tax cuts would offset the tax increases for the average Tennessean. They tried to propose a way to increase transportation funding without increases in the gas tax. But an amendment to change the bill failed in the House.

IMPROVE Act

State Sen. Jim Tracy

"The IMPROVE Act cut taxes on food, cut taxes on business and increased tax relief for Tennessee's veterans," said Tracy Wednesday night. "We did that while protecting Tennessee's future by relying on a dedicated user fee. I look forward to the House concurring to our action soon so we can get on with the business of the state. I don't know why anyone wouldn't support the largest tax cut in Tennessee history."

Tracy, who chaired the Senate Transportation Committee before becoming speaker pro tem of the Senate in January, toured the state two years ago to discuss the transportation issue.

"I'm excited," said Marsh. "It went a little bit smoother than I expected." He said he was pleased that the plan received 60 votes in the House, better than he was expecting.

State Rep. Pat Marsh

Marsh is a principal in Big G Express, a trucking firm, and the trucking industry has generally favored the concept of resolving the transportation backlog, even if it took a fuel tax to do so.

Marsh noted that the fuel tax is paid, not only by Tennesseans, but by those from other states who use Tennessee highways while passing through the state. Marsh also said that Big G's trucks drive only a quarter of the miles in Pennsylvania that they drive in Tennessee, but pay roughly the same amount of tax.

Veterans relief

The key difference between the House and Senate versions of the bill is in increases to property tax relief for disabled veterans. Marsh said he was confident that the House would be willing to include such relief to match the Senate version, even though it had previously been taken out of the bill on the House side.

"It won't be anything that we can't overcome," said Marsh.

Republican House Speaker Beth Harwell of Nashville ended up voting in favor of the bill after supporting the failed effort to remove the gas tax hike.

"While this was not the plan I preferred -- I definitely preferred the other plan -- at the end of the day infrastructure is a limited role of government and we need to perform it well," Harwell told reporters after the vote.

The speaker said she doesn't anticipate revived efforts to change the funding mechanism if the bill ends up in a conference committee to iron out differences.

"I think the vote was clear today," she said.

Change denied

Under the change proposed by Rep. David Hawk, R-Greeneville, the state would have instead paid for new transportation projects by dedicating tax revenue from the sale of new and used vehicles. Hawk's alternative plan was defeated on a 58-38 vote.

Haslam has argued his approach was fairest because up to half of fuel taxes are paid for by trucking companies and out-of-state drivers. Sales taxes on vehicles are only paid on cars and trucks registered in Tennessee.

Following the vote, Haslam thanked lawmakers for passing a bill that "makes us more competitive as we're recruiting manufacturing jobs and keeps our transportation network safe, reliable and debt-free for the next generation of Tennesseans."

The House vote on the bill illustrated how closely divided the Republican supermajority is on the measure, with 37 members voting for and 35 voting against. Democrats voted 23-2 in favor of the amendment.

After the overwhelming Senate vote, Speaker Randy McNally, R-Oak Ridge, said the bill amounts to a "clear" and "undisputed" tax cut.

'Victory'

"It is a victory on all fronts -- for taxpayers, for economic development and for the continued mobility and safety of our citizens," McNally said in a statement. "Good roads and solid infrastructure lead to economic expansion and job growth. Tax cuts result in more money in the pockets of our citizens and more entrepreneurism in our state."

Tennessee's gas tax is now 21.4 cents per gallon and its diesel tax is 18.4 cents per gallon.

The estimated $350 million the measure would add to road funding would be offset by a projected $400 million in cuts to other taxes. They include a 20 percent reduction in the sales tax on groceries, a $113 million cut in corporate taxes paid by manufacturers and a 1 percent reduction in the tax on earnings from stocks and bonds.

The bill lists nearly 1,000 projects that would be funded with the new revenue.