Md. gas tax set to increase next month

Motorists in Maryland will have to dig a little deeper in July when the state’s gas tax goes up.

The excise tax on gasoline will increase by nine-tenths of a cent, mostly attributed to a sales and use tax created three years ago and, to a smaller degree, inflation. The new rate represents a 10-cent increase on gasoline since the 2013 law went into effect. For those people who have a “glass-half-full” viewpoint, it could have been worse.

For gas station operators, the increase represents an accounting and competition challenge.

“When this was passed it wasn’t simple,” said Ellen Valentino, a lobbyist representing the Mid-Atlantic Petroleum Dealers Association. “It’s complicated and complex and comes in waves.”

Additionally, Valentino said the tax creates an uneven playing field for some operators who operate near Virginia, Delaware and the District of Columbia where gas taxes are lower. That potentially could cause retailers in Maryland to consider cutting prices on other goods and services to be more competitive, she said.

“It will have a negative effect for border stations, just like any retailer when they’re put at a disadvantage,” Valentino said. “If people can buy it cheaper at another location then people will buy it there. They just will.”

Under the 2013 law, the legislature increased the per-gallon tax and added a new sales and use tax. That sales tax rate would phase in to a maximum of 5 percent based on the average annual price of a gallon of gasoline — unless the federal government adopted an internet sales tax.

But the federal government failed to meet the December 2015 deadline for such an adoption, and the Maryland gas tax rate increased from 3 to 4 percent in January; it now will top out at 5 percent in July.

The law also indexed future annual fuel tax increases to the rate of inflation with a maximum increase of 8 percent in any given year. That last time inflation ventured above 8 percent was 35 years ago when the Consumer Price Index was 10.35 percent, according to the U.S. Bureau of Labor Statistics.

But the tax isn’t as high as it was originally projected in 2013. An analysis of the legislation that year contemplated that gas prices, then about $3.70 per gallon, would remain at that level and increases in the sales and use tax and for inflation would drive the per gallon tax to 39.2 cents per gallon in fiscal 2016 and 43.7 cents per gallon by July 1 of this year.

Since the new rates were enacted, gas prices have declined in Maryland and have been under $3 per gallon since October 2014 and under $2.50 per gallon since mid-August 2015, according to GasBuddy.com.

Republican Gov. Larry Hogan criticized the tax increase during the 2014 campaign and sought to repeal the portion of the tax pegged to the rate of inflation. A bill proposing that change during Hogan’s first legislative session in 2015 died in committee.

“The governor does not believe in tax increases but believes if they are going to happen they shouldn’t be done in secret, they should have a vote each time,” said Douglass Mayer, a Hogan spokesman.

Hogan in his first two years has reduced or eliminated millions of dollars in fees and tolls through executive action and legislation.

Mayer declined to say if Hogan would again seek a reduction in the state gas tax.

Maryland is the only jurisdiction in the mid-Atlantic region to index the fuel tax to annual inflation rates or to impose a sales tax on the retail price of gasoline.

Chuck Ulm, assistant director of field enforcement for the Office of the Comptroller, said the calculations can be “complicated but it’s what we’ve got.”