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An Evaluation of the Montana Local Option Motor Fuel Excise Tax

Start Date: 03/01/2020
End Date: 06/30/2020
ABSTRACT:

With this analysis, the Western Transportation Institute (WTI)  estimated and contextualized the impact that exercising authority for the $0.02 per gallon Local Motor Fuel Excise Tax, would have for counties throughout Montana. The analysis indicates that both the state gas and diesel taxes, as well as the $0.02 cap on the Local Motor Fuel Excise Tax, have not kept up with inflation, and that fuel tax revenues cover a relatively small share (7%-10% on average) of the roadway, highway, street, and bridge expenditures across the seven Montana counties included in the study area. Meanwhile, enactment of the current authority for a $0.02 Local Option Motor Fuel Excise Tax would impose a relatively modest burden – between approximately $8 and $27 per year, depending on annual mileage and fuel economy – on motorists in counties adopting the tax.

Overall, analysis indicates that, in the short-term, the Montana Legislature could amend collection of the Local Option Motor Fuel Excise Tax from the retail to the distributor level, in order to address retailer concerns. Further, counties across Montana could enact the $0.02 Local Option Motor Fuel Excise Tax to reduce the gap between fuel tax revenues and roadway, highway, street, and bridge expenditures, without severely burdening affected motorists. In the long-term, the Montana Legislature could consider further increases to the state gas tax, which has not kept up with inflation (even after the scheduled increases through 2023), as well as an increase to the $0.02 cap on the Local Option Motor Fuel Excise Tax, which would need to be approximately $0.072 to have the same purchasing power it had when first enacted in 1979. Finally, to fully close the gap between roadway, highway, street, and bridge expenditures and fuel tax revenues, counties would need to increase the gas tax on average between $0.70 and $0.90 per gallon. This could enable a commensurate reduction in property taxes and a shift toward more direct user fees.

OBJECTIVE:

The objective of this project was to evaluate the impact of the $0.02 per gallon Local Motor Fuel Excise Tax for counties throughout Montana.

PERSONNEL:

  • Andrea Hamre
    Andrea Hamre

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