O’Malley supports applying sales tax to gasoline

Listen to this article

Gov. Martin O’Malley outlined a proposal on Monday to apply Maryland’s sales tax to gasoline, calling it the “best option” to boost spending on roads, bridges, rail lines and other transportation projects.

The 6 percent sales tax would be phased in evenly over three years and, when fully implemented, yield an estimated $613 million a year for the state.

That hike would cost drivers an extra 18 cents a gallon, based on Monday’s average of $3.48 for regular.

O’Malley acknowledged the move would not be popular, but said the state needs to spend more on transportation.

“The best way, I would think to do that, after consultations and discussions with legislative leaders, would be to roll back [gasoline’s] exemption from the sales tax,” the governor said.

O’Malley’s proposal, floated Monday morning on WTOP radio, puts on the table what had been last missing piece in a legislative agenda dominated by increased infrastructure spending designed to spur hiring in the construction sector.

The governor said he will submit the transportation bill shortly after he delivers his State of the State speech to the General Assembly on Wednesday.

Business leaders, O’Malley’s staunchest supporters in his search for more transportation revenue, applauded the governor for pushing a bold proposal.

But some said the increase would be too much for the private sector to stomach.

The Maryland Chamber of Commerce, Greater Baltimore Committee and Greater Washington Board of Trade have all supported raising the gas tax by a dime over the 23.5 cents that it has been since 1992.

“I think 6 [percent] is higher than anybody expected, and he’s going to have to sell it to the business community, and I don’t believe we’re willing to go that high,” said Jim Dinegar, president and CEO of the board of trade. “In legislative negotiations, you either start out high, or at absolute no, and meet somewhere in the middle. I think that’s what’s going on here.

“Maybe it doesn’t need to go to six. Maybe it needs to go to four,” he said. “If you’re going to get all the abuse that’s going to be heaped on him, you may as well make it worth it.”

O’Malley’s proposal would calculate the sales tax based on retail prices, less state and federal gas taxes that add up to 41.9 cents per gallon. It would also include “some sort of breaking mechanism” to limit the sales tax phase-in during years when gas prices spike, the governor said.

Chamber President and CEO Kathleen T. Snyder said her group’s board would have to review the governor’s legislation before taking a position.

“Having something that goes up to that level is rightfully a concern for every driver,” she said. “Obviously it will cost people more money, but it does generate a lot more money for the transportation fund.”

The governor’s proposal will likely not include a host of other fee increases recommended by the Blue Ribbon Commission on Maryland Transportation Funding, which called for the state to raise more than $800 million more a year.

The result is a more straight-forward approach, but one that could leave all the transportation funding eggs in one basket.

“It’s an all or nothing approach,” Dinegar said. “That raises some concerns for us. If you get nothing, you actually get nothing.”

But, business leaders were pleased by a signal from the governor that his proposal will include a “lockbox” provision to discourage budgetary raids that sap money from the Transportation Trust Fund.

“The reality is that money has been borrowed from the trust fund over time, and here’s the first influx of new dollars in 20 years,” said Donald C. Fry, president and CEO of the GBC. “We think this deserves some protection.”

While much of the transportation funding discussion in Annapolis has centered on how much the flat gas tax could or would be raised, O’Malley’s tack will appeal to lawmakers uninterested in revisiting this issue in the coming years.

Senate President Thomas V. Mike Miller Jr., D-Calvert and Prince George’s, endorsed the idea in a recent interview in large part because the sales tax “revenues would rise as the price of gas rises.”