03/01/2013 01:57 pm ET Updated Dec 06, 2017

California Gas Tax: Excise Fee Raises By 3.5 Cents

No matter what market forces do to California gasoline prices in the near future, Golden State motorists will be paying a few pennies more per gallon four months from today.

The State Board of Equalization on Thursday approved raising the excise tax for gasoline to 39.5 cents a gallon, a 3.5-cent increase that will take effect statewide July 1.

Approval by a 3-2 vote came on the third and final day of the board's meeting in Culver City.

The excise tax is the byproduct of laws, signed by former Gov. Arnold Schwarzenegger in 2010, that created a new tax structure for gasoline and mandated that the board adjust the state gas excise tax rate by March 1 of each year.

The so-called "fuel tax swap" laws require the board to lower the sales tax on fuel and raise the excise tax by a corresponding amount to ensure "revenue neutrality."

The new tax structure eliminated the general fund portion of the sales and use tax on motor vehicle fuel and raised the excise tax. The change was proposed when the state sales tax rate was reduced in 2010, and the Schwarzenegger administration was looking for ways to free up money to balance the state budget.

The swap was designed to ensure that state taxes consumers pay at the pump remain the same as they would have been under the previous tax structure.

In early 2010, the Schwarzenegger administration officials touted the switch as a way to help California close a nearly $20 billion budget gap by nullifying laws reserving most of the gas-pump sales tax for transit agencies. Officials claimed that would free up hundreds of millions for the state general fund.

Calculations were hotly disputed by government and transit officials, and the governor's administration warned at the time that the gas excise tax would increase annually for 10 years.

The current structure is tied to the price of fuel but also involves estimating future gasoline consumption within the state.

The Board of Equalization said 14.6 billion gallons of gasoline were purchased in-state last year. Based on projections, Thursday's 3.5-cent increase will generate more than $500 million from July 1 through June 30, 2014.

Under the old tax structure, a consumer paying $4.45 a gallon at the pump paid $3.96 for fuel, 18 cents in excise tax and 31 cents in sales tax. Under the current structure, the same $4.45 for a gallon of gas breaks down this way: $3.96 for fuel, 39.5 cents in excise tax and 10 cents in sales tax.

Gasoline sales tax revenue funds local government programs; the state excise tax on gasoline funds highway and mass transit projects throughout California.

Board member George Runner is among those not happy with the current system -- he voted against the 3.5-cent increase on Thursday -- and has previously proposed capping the excise tax and limiting sales tax to the first $4 per gallon of gasoline.

Explaining his "no" vote on Thursday, Runner issued this statement: "I cannot support a more than half a billion dollar tax increase on struggling Californians who are already experiencing significant pain at the pump."

Also on Thursday, the board left the excise tax rate on diesel fuel unchanged at 10 cents per gallon for the July 1-June 30, 2014, period.

Call The Bee's Mark Glover, (916) 321-1184. ___