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Are You Prepared for California’s Diesel Fuel Tax Increase?

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california tax blog post headerAs of last month, it has been nearly twenty-five years since the last federal diesel tax increase. Making up 2.4% of annual GDP, the United States lies near the bottom of the pack for infrastructure expenditures in developed countries. On top of that, organizations such as the American Society of Civil Engineers have recently given the U.S. a failing grade in infrastructure quality. Groups including the U.S. Chamber of Commerce and others have pushed for increased spending. Without future increases, the effect on logistics could be pronounced, with delays affecting both manufacturing and final delivery of goods for shippers.

As a reaction to this relatively static level of investment on the federal level, states have started to take action to increase funding for roads, bridges and ports. As the National Conference of State Legislatures recently reported:

“So far in 2017, seven states—California, Indiana, Montana, South Carolina, Oregon, Tennessee and West Virginia—have passed legislation to increase fuel taxes. Additionally, Utah enacted measures to accelerate the motor fuel tax indexing provisions implemented in the state’s 2015 fuel tax legislation, likely leading to a fuel tax increase in subsequent years.”

Supply Chain Dive describes the trend for states as a “last-ditch plan to repair their failing infrastructures by raising gas prices.”

Among the states listed, none may have more of an impact on moving goods to market than California. Home to the largest ports in the U.S. in addition to major regional hubs for logistics firms such as UPS, changes in fuel costs for shippers in California will have a ripple effect across the economy. And the changes coming this November are significant.

A 20 Cent Increase in Diesel Taxes, And More

Starting on November 1, 2017, the base diesel fuel excise tax will increase by a flat 20 cents, up to 36 cents per gallon. In addition, the existing 1.75% diesel fuel tax will jump up to 5.75%. Over 300 gallons of diesel fuel purchased – an average tractor tank fill up, this would mean around $81 in additional taxes over the previous rates. Starting July 1, 2020, these new taxes will be adjusted for inflation. Fuel taxes in the states surrounding California are considerably lower, with the smallest in Arizona at 27 cents, followed by Nevada at 28.56 and Oregon at 30.36. In all, the newly increased taxes bring California up to second-highest in the U.S. Only Pennsylvania, at 74.7 cents per gallon, is greater.

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Emissions Changes for Trucks Included

The California legislation includes a change intended to ease the increased cost burden on the trucking industry. As reported in CDL Life, “To entice truckers to support the tax hike, Governor Brown added an amendment referred to by environmental advocates as the “dirty truck amendment.” This addition to the fuel tax legislation prevent California from requiring truckers to upgrade to a lower-emission truck model before the truck was 13 years old or had 800,000 miles on the odometer. The amendment is designed to reassure truckers that they will get their money’s worth out of a truck before they are forced to upgrade.”

cargo on ship

Possible Benefits to Shippers?

Will shippers receive any benefit from these increased costs? Time will tell, but a couple of items in the legislation hold promise. The new diesel taxes, combined with other fuel taxes and vehicle fees, is intended to raise $5.2 Billion per year for infrastructure, with a stated $365 million for ports and trade facilities. $250 million will be spent to reduce traffic congestion on major corridors in the state. Congestion does have a substantial economic impact. According to UPS, businesses in the United States are “spending $27 billion annually in extra freight costs and shipping delays that raise prices on everyday products.” As far as ports are concerned, additional investment is welcome as terminals struggle to accommodate the new class of “mega” container ships carrying 13,000 TEUs, 18,000 TEUs or even higher – double what was expected only a decade ago.

Quick Reference: Other 2017 State Increases in Diesel Taxes

Stay on Top of Changes in Fuel Prices as They Happen

Read additional information on this tax increase in our Advisor Pulse.

With state taxes and fees in flux, it is vital to have transparency into the true cost of fuel. Shippers who work with Breakthrough®Fuel benefit from real-time, actual pricing on the fuel costs for moving their goods to market. We work with actuals, not averages, and include taxes. Using our services, shippers have achieved reductions in fuel costs of 34% in a single year. We help clients increase their use of intermodal at a rate twice the industry average.

Call us at 920-617-3070 or download our a sample version of our Breakthrough®Advisor to learn more about our fuel management solutions.

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