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Kentucky: Gas Tax Rate Dropping in 2015

  • Nov 25, 2014 | Gail Cole

 How will Kentucky pay for its roads?

The Kentucky gas tax, an excise tax on gasoline, diesel and ethanol motor fuels, is dropping by more than 4 cents per gallon on January 1, 2015. As a result, there will be approximately $129 million less revenue in the Kentucky Road Fund, which funds the construction and maintenance of highways and bridges.

The decrease will be crippling, according to Kentucky Transportation Secretary Mike Hancock. “The gas tax accounts for more than half of the revenue in the Kentucky Road Fund. A loss of revenue is always concerning, but revenue impact of this magnitude is crippling.” It could delay or even cancel project already in the funnel.

Kentucky’s transportation infrastructure is funded by users, who pay the following taxes and fees every time they visit fuel pumps:

  • A fixed, supplemental user fee of 5 cents per gallon for gasoline and 2 cents per gallon for diesel and other special fuels.
  • A state fee of 1.4 cents per gallon for cleanup of old underground storage tanks.
  • A variable excise tax, which is 9% of AWP (average wholesale price) of gas, diesel and ethanol fuels. The AWP is adjusted quarterly.

Motorists also pay the federal fuel tax (18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel), which has not changed since 1993.

Beginning January 2015, the variable excise rate in Kentucky will drop from 25.5 to 21.2 cents per gallon. Motorists will therefore pay a total state tax and fee of 27.6 cents per gallon, down from 31.9 cents per gallon. Additional information.

A national trend

Declining gas tax revenue is impacting state transportation systems. According to the Pew Charitable Trusts September 2014 report Intergovernmental Challenges in Surface Transportation Funding:

“Revenue from federal and state gas taxes as well as state vehicle taxes has not kept pace with the growth of construction costs in recent years. Because these sources provide such a large share of surface transportation resources, their decline in real terms has important implications for the federal government and the states’ ability to maintain transportation investments.”

Federal gas tax revenue declined by 31% between 2002 and 2012, and state gas tax revenue dropped by 19%. Kentucky’s 2015 gas tax rate decrease is therefore in step with the times.

Excise taxes go up and down but they still need to be paid on time. Fuel tax automation generates signature-ready fuel tax returns. Learn more.

photo credit: Sarah Elizabeth Altendorf via photopin cc

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.