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Explainer: Why is Maryland’s gas tax set to rise by so much?

Barring extraordinary action by the legislature and the governor, Maryland motorists will pay more at the pump in state fuel taxes.

The 6.6-cent increase announced Monday by Comptroller Peter Franchot is the result of a 2013 law that all but guarantees automatic increases in the state portion of the gas tax.

Nearly a decade ago, lawmakers passed the revamped tax plan in a way that meant they would never have to take another vote on a politically unpopular issue by linking the excise tax to inflation.

At the time, proponents sold the bill to the public by saying that the money would go to a dedicated transportation fund. Increases linked to inflation would be capped at 8%.

Franchot announced the new 42.7-cent rate Monday in a letter to Gov. Larry Hogan. The increase represented a roughly 18.3% increase over the current 36.1-cent rate.

So, what gives?

Like many tax issues, the state’s gas excise calculation, as redrawn by the General Assembly and signed by then-Gov. Martin O’Malley, is complicated.

RELATED: Franchot urges Hogan, lawmakers to hold special session to curb gas tax

The state portion of the fuel tax is two taxes in one. The first is tied to the consumer price index over the past year; the second is a state sales tax tied to the average cost of a gallon of gas over the same period.

The current gas tax includes 27.1 cents pinned to inflation and 9 cents in sales tax.

On July 1, this will change.

Inflation for the past 12 months, as determined in April according to the law, was 6.6%. This results in an increase of 1.8 cents per gallon on top of the current 27.1 cents. The increase is nearly fourth-tenths of a penny lower than the 8% cap on inflation.

It is also important to note that the tax attributed to the consumer price index never goes down under Maryland law even if there is negative inflation.

The biggest portion of the announced increase is attributed to the sales and use tax.

The current rate is 9 cents on the retail price of a gallon of gas. In about one month, the rate will rise to 13.8 cents — an increase of more than 53%.

The sales and use portion of the tax is determined by a simple formula. The comptroller’s office takes the average price of a gallon of gas for the previous year and subtracts out the fuel taxes.

Last year, an average untaxed gallon of gas cost $2.76 cents. That price is then multiplied by the 5% tax rate. The result is a sales tax of 13.8 cents per gallon.

This portion of the tax can go down. In the two previous years, when use and gas prices were low, the sales tax portion decreased slightly.

The increases from the two components of the state’s gas tax result in a total state excise of 42.7 cents per gallon that will become effective July 1.


One comment

  1. If I am reading this right, the increase in 2023 will be even greater than this one. What a screwed up system: wages flat, inflation out of control due to profligate fiat currency printing, and the State of Maryland piles on with a inflation-based tax. The old one-two punch by our political class.