Increases to California state fuel taxes that are part of legislation signed in late April will come into effect on November 1st. The tax increases, which include a 20¢ excise tax and a 4 percent sales tax increase for diesel fuel, will help California generate an additional $5.2 billion annually to pay for transportation infrastructure projects. Immediate projects will include repairing weakened bridges and smoothing pot-hole-filled stretches of interstate highway throughout the state. Yet, these infrastructure improvements will come at varying annual costs for Breakthrough®Fuel clients, based on network footprints within California, and all clients can expect to experience a per-gallon price impact of nearly 30¢ within the state beginning November 1st.
The graphic above uses actual California fuel prices during the past calendar year to express a possible range of impact for the fuel tax changes on a single gallon of diesel fuel. The additional excise tax of 20¢ (increasing from 16¢ to 36¢) will apply to every gallon consumed within California, with a carrier’s tax amount dependent on their miles traveled within the state, as is current practice through IFTA. The sales tax increase (increasing from 1.75 percent to 5.75 percent) will depend on the cost of fuel and applies to each gallon of fuel purchased in California. During 2016 the additional sales tax would have cost between 6.9¢ and 9.1¢ per gallon.
The current price of diesel fuel corresponds to a sales tax near the top of last year’s range, leading to a total tax impact of nearly 30¢ per gallon. The chart below shows the average impact of tax changes from a recent day (incorporating other existing taxes, such as district taxes) to show the estimated total tax on a gallon of diesel fuel within the state of California beginning November 1st. The tax increases will apply to USLD, biodiesel and renewable diesel. There are no immediate tax increases for CNG or LNG (including renewable natural gas), widening the spread between natural gas and diesel fuel within California.
Fuel Recovery will seamlessly account for the tax changes in California as they take effect. Carriers will be reimbursed for the higher state taxes through Fuel Recovery, so no additional transactions are necessary from clients. Please contact your Client Account Manager should you receive carrier communication regarding rate increases resulting directly from the California tax increases. Please also feel welcome to contact your Client Account Manager for further analysis of the tax increase.
Please contact Daniel Cullen, Vice President of Advisory Services at Breakthrough®Fuel, to learn more.