State leaves diesel consumers out of fuel tax relief effort

Connecticut’s truckers and other consumers of diesel fuel won’t benefit from the new circuit-breaker on gasoline taxes, even though rising prices likely will push the diesel levy upward starting this summer.

Leaders of the legislature’s Finance, Revenue and Bonding Committee confirmed last week they received a request from the state’s largest trucking association to adopt comparable relief for diesel consumers. And while the legislature decided not to include anything in the measure signed into law Tuesday by Gov. Dannel P. Malloy, leaders said the state’s entire fuel tax network likely would be closely reviewed in the 2013 session, which starts in January.

“I suggest to you that the diesel fuel tax has hit the tipping point and will continue to make Connecticut an expensive place to do business,” Michael J. Riley, president of the Motor Transportation Association of Connecticut, wrote to lawmakers.

The current state diesel tax of 46.2 cents per gallon ranks first in the nation, noted Riley, whose association represents more than 1,400 companies.

Massachusetts, which also imposes highway tolls, collects 25 cents less per gallon in diesel taxes than does Connecticut, which is toll-free. But Rhode Island, which also lacks tolls with the exception of one bridge leading to Newport, collects 14 cents less per gallon.

Legislators argued last week when they enacted the cap that non-diesel fuel taxes, which also lead the nation, have reached a “tipping point” and are in danger of hindering the economic recovery.

Unlike the single levy on diesel, Connecticut has two taxes on gasoline — one responsive to usage, the other to price.

The state imposes a fixed, 25-cents-per-gallon tax when consumers fill up. But first a wholesale levy, the petroleum products gross receipts tax, adds another 7.53 percent to the cost of gasoline — an expense built into the price paid by motorists.

Based on the average wholesale price recorded last week — $3.23 per gallon— the wholesale tax adds another 24 cents per gallon, according to the Independent Connecticut Petroleum Association.

The new circuit-breaker would use an artificial price of $3 per gallon to calculate the wholesale tax whenever the actual price exceeds that $3 mark. Based on the latest average wholesale price, the circuit-breaker saves consumers just over 1.5 cents per gallon.

Even with that cap, gasoline consumers could face one of the largest fuel tax increases in state history in 15 months.

The wholesale levy is slated to rise by one-sixth in July 2013, imposing an effective rate of 8.81 percent. Even with the circuit-breaker provision this rate increase would add another 4 cents per gallon to gasoline taxes.

But Riley is urging legislators to enact diesel tax relief before this year’s session ends May 9, noting that diesel consumers — who faced a 6.6-cents-per-gallon increase last summer — are just three months away from another likely hit.

Connecticut calculates its diesel tax using a complicated formula that relies not only on the gasoline rate, but also on the average wholesale diesel price over the prior year.

And though the state Department of Revenue Services won’t announce any final diesel rate adjustments until late June, the U.S. Energy Information Administration reports that the average price of diesel fuel on New England highways has grown by 23 cents per gallon over the past year.

“I’m afraid that by July we’re looking at a 50-cent diesel tax or more,” Riley said.

So if lawmakers imposed an artificial wholesale price fix to freeze taxes on regular gasoline — at least for the next 15 months — why can’t something similar be done for diesel consumers? Riley asked.

“We did consider it,” Rep. Patricia Widlitz, D-Guilford, co-chairwoman of the legislature’s tax-writing Finance, Revenue and Bonding Committee, said. “In the end, it was not our decision to go forward with that. We were trying not to reopen the tax package in general.”

After imposing more than $1.6 billion in new state and municipal taxes in 2011 to help close a record-setting state budget deficit, legislative leaders said their goal was to keep the state’s tax structure as stable as possible in 2012.

But the circuit-breaker aimed at gasoline taxes, which impact a larger group of consumers than the diesel levy does, arose in Hartford this spring as national polling shows an electorate angry over gasoline prices, which have jumped about 30 cents per gallon in the past month. A Reuters/Ipsos online poll Tuesday found two-thirds of Americans dissatisfied with President Obama’s handling of gas prices.

According to the Connecticut AAA, the average retail price of regular gasoline Wednesday stood at $4.11, a price topped by only six other states and the District of Columbia.

Sen. Eileen M. Daily, D-Westbrook, the Finance panel’s other co-chairwoman, added that the legislature also had to be careful about the level of tax relief it provided given fiscal concerns on the horizon.

The $20.7 billion budget Malloy proposed in February for the 2012-13 fiscal year. That plan, according to administration numbers, is balanced next year, but runs $424 million in the red in 2013-14 — and that was based on the assumption that the next gasoline tax hike would take effect. The circuit-breaker would cancel about $5 million of the $55 million that tax increase is expected to provide, according to the legislature’s nonpartisan Office of Fiscal Analysis.