Diesel drivers get a tax break

Connecticut may be headed for the largest budget deficit in its history in just 13 months, but some consumers will actually be enjoying a state tax cut later this summer.

Thanks to a drop in the world price of crude oil and a relatively new system for calculating tax rates, the levy on diesel fuel will drop 5.5 cents, to 39.6 cents per gallon starting July 1, the first decline since a variable rate system began in mid-2007.

“Unbelievable as it may seem, hell may well have frozen over,” Eugene A. Guilford Jr., president of the Independent Connecticut Petroleum Association, wrote in a recent statement. The association represents about 560 petroleum marketers statewide.

The General Assembly adopted legislation three years ago that recalculates the diesel fuel tax each summer based on the average wholesale cost of the fuel for the prior 12 months. Department of Revenue Services spokeswoman Sarah E. Kaufman confirmed the rate reduction, adding that the agency has notified fuel retailers of the change.

“This will help a lot,” said Michael J. Riley, president of the Motor Transport Association of Connecticut, whose group represents about 900 freight haulers, landscapers, construction firms, lumber yards, moving companies and other businesses that rely heavily on diesel-fueled trucks. “Last year we kind of took it on the chin.”

Since an initial rate of 37 cents per gallon was set in July, 2007, the rate has climbed steadily each year, reaching 45.1 cents last July.

But the U.S. Energy Information Administration reported that the price of crude oil fell as low as $71 per barrel on May 21, down from $87 in April, pushed by concerns about the strength of the global economic recovery.

Guilford added that the association expects prices for diesel fuel and regular gasoline may continue to decline slightly until July 4, provided there are no major changes in the world economic picture. That’s because national demand for gasoline and other fuel has dropped from 9.6 million barrels per day to 9.2 million over the past two months.

Riley said many of his member companies’ trucks get as little as five miles to the gallon, adding that 5 cents off the price can mean significant savings.

Connecticut’s other fuel tax rates are fixed.

Motorists pay a 25-cents-per-gallon retail tax on gasoline purchases.

The state also levies a 7 percent tax on wholesale transactions involving gasoline and several other fuels, but not on home heating oil. Based on average prices at New Haven harbor, the single-largest fuel importing site in Connecticut, the ICPA estimates that the wholesale levy currently adds nearly 17 cents per gallon to the price of gasoline.

The new $19.01 billion budget the General Assembly and Gov. M. Jodi Rell adopted in early May for the 2010-11 fiscal year is balanced in part on $489.7 million in retail fuel taxes, including $92.4 million from the diesel tax, according to the budget’s revenue schedule.

The tax break is not expected to create any major shortfall in the recently adopted budget, since legislative analysts anticipated a reduction in the diesel rate when preparing the $92.4 million estimate.

The state budget for the 2011-12 fiscal year, though, is projected to face a $3.37 billion shortfall, according to the legislature’s nonpartisan Office of Fiscal Analysis.