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Board of Equalization Approves Lower Gas Excise Tax Rate

February 26, 2014
The California State Board of Equalization (BOE) on Tuesday, Feb. 25 unanimously approved lowering the state’s gas excise tax rate by 3.5 cents per gallon.
The rate change will reduce the state’s excise tax from 39.5 cents to 36 cents starting July 1 and expiring June 30, 2015. The board’s decision returns the excise tax rate to the previous 2013 rate of 36 cents per gallon.

Gov. Arnold Schwarzenegger signed legislation in 2010 enacting the “fuel tax swap,” which created a complex new structure for calculating taxes on gasoline. The swap simultaneously lowered the sales tax rate applicable to the sale of motor vehicle fuel by five percent, and increased the excise tax rate to create “revenue neutrality” while freeing up more money for the state’s general fund. Under existing law, the BOE is required to annually review the excise tax rate and make necessary adjustments by March 1 every year. Revenues generated by the state gas excise tax are dedicated to fund transportation projects throughout the state.
Several board members expressed an interest in pursuing changes to the swap that will provide more transparency in the rate setting process.  In addition, the League has been meeting with state officials to discuss ways to provide more stability to transportation revenues instead of having swings each year. As a result of the rate decrease, cities will receive lower gas excise tax revenues in FY 2014–15 as compared to FY 2013–14. However, city revenue projections released by California Local Government Finance Almanac in January anticipated this adjustment.

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