Georgia motorists recently won temporary tax relief as they struggled to cope with soaring fuel costs.
With already-tight gasoline supplies exacerbated by damage from Hurricanes Katrina and Rita, sending prices to record highs of more than $3 a gallon, motorists frightened by rumors of government-ordered gas station shutdowns began lining up at the pumps. At some stations gasoline sold for as much as $6 per gallon.
Gasoline prices in the Atlanta area were already high because of the smog-season gasoline blend the U.S. Environmental Protection Agency requires to be sold during the summer in metropolitan areas most affected by air pollution.
Governor Orders Tax Halt
Gov. Sonny Perdue (R) stepped in on September 2, issuing an executive order to halt collection of the state sales and use tax and state excise tax on motor fuels during September. The state legislature promptly ratified the order in special session.
The order applied to aviation fuel, gasoline, dyed fuel oils (diesel), liquid propane gas, and other gas including gasohol, ethanol, liquefied natural gas, and compressed natural gas.
“I believe it is absolutely wrong for the state to reap a tax windfall in this time of urgency and tragedy,” Perdue said at a news conference announcing the moratorium.
The state collects 7.5 cents per gallon of gasoline in excise tax, and a 4 percent state sales tax. Perdue predicted the moratorium could save motorists more than 15 cents a gallon–$75 million in all. Local government sales taxes add up to 3 cents per dollar to fuel prices.
Savings to Consumers
Despite concerns that gas producers or retailers would “pocket” the tax cut, the savings were in fact passed on to motorists, according to E. Frank Stephenson, chairman of the Department of Economics at Berry College in Mount Berry, Georgia.
Stephenson performed a comparative analysis of regional fuel prices and found “the tax moratorium period saw a shift of 12 cents per gallon in favor of Georgia drivers relative to drivers in neighboring states,” he reported in an October 18 op-ed in the Atlanta Journal-Constitution. “Georgia drivers went from paying 4 cents more per gallon to 8 cents less per gallon.”
Money Won’t Be Missed
Perdue and lawmakers said the state could afford to give up the projected $75 million without having to make major budget cuts because higher fuel prices earlier in the year brought in more tax revenue than expected.
Jim Tudor, president of the Georgia Association of Convenience Stores, warned that temporary relief notwithstanding, rising gas prices make it necessary for policymakers to re-examine Georgia’s motor fuel tax system. Applying the sales tax to motor fuels, which most other states don’t do, increases the tax effects of rising fuel prices.
“With gasoline retailing at the $3 per gallon level, Georgia’s total taxes on motor fuel are now among the highest in the Southeast, moving up seven places since June,” Tudor wrote in a September commentary for the Georgia Public Policy Foundation.
“[M]uch has been made about Georgia’s low excise tax on motor fuel, but little is said about Georgia being one of the few states in the nation and the only one in the Southeast to charge state and local taxes on the retail price of motor fuel,” Tudor wrote, citing a windfall exceeding $100 million in fiscal 2005. “This means that while other states are looking at providing gas tax relief, Georgia continues to benefit from the run-up in prices.”
Governor Requests Schools Close
Three weeks after his executive order, the governor created controversy nationwide when he announced energy-saving measures–including a request that state public schools close for two days to conserve diesel fuel. (See “Georgia Schools Cut Travel in Response to Katrina,” School Reform News, November 2005.) He was accused of pandering to industry lobbyists supporting agriculture’s needs at the expense of education.
Gary Black, president of the Georgia Agribusiness Council, said his council made no concerted effort to close schools, but he added, “It is important to recognize that the need was real, as the window for harvest is short and timing is critical. The governor made a prudent decision based on available facts. The benefits to agriculture were ancillary, yet appreciated.”
Benita M. Dodd ([email protected]) is vice president of the Georgia Public Policy Foundation.