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Research: Local Option Sales Taxes and Transportation Funding
March 6, 2008
The US “has gradually been shifting the financial burden for transportation away from user fees and toward general taxes and fees, such as sales taxes, that fall upon all citizens regardless of the extent to which they use the transportation system.”
There are presently 34 states, including Georgia, that have authorized local option sales taxes either specifically for transportation or for broader purposes that include transportation. Overall, local option transportation taxes – including vehicle, fuel and property taxes – are in place in 46 states.
The University of California, Berkeley’s Institute of Transportation Studies attributes the national popularity of local sales taxes for transportation to four characteristics:
1. Direct local voter approval: These measures typically result in projects and services near voters’ homes and work places, so they personally can appreciate them and anticipate their benefits.
2. Sunset Dates: Voters enact transportation taxes that will persist typically for fifteen or twenty years unless specifically reauthorized by another popular vote.
3. Specific lists of transportation projects: The taxes may be used only to build certain projects or fund specific programs named in the ballot measures.
4. Local control over revenues: The money raised locally is spent locally and for local benefit .
The sales tax has several advantages over other methods of transportation financing:
• Broad base
Sales taxes are spread across a wide array of goods. This means that downturns in a particular market segment will have less of an impact on the amount of revenue generated. It also means that a large amount of revenue can be raised for a low marginal tax rate
• Market Adjusting
Because fuel tax rates are defined in cents per gallon, the state legislature must make any adjustments for inflation. In contrast, sales taxes automatically generate higher revenues in nominal dollars as prices and wages increase.
• Reaches all beneficiaries of the system
The benefits of a transportation network extend beyond those who directly use it. Public safety and health service providers, builders and freight carriers, for example, use the infrastructure to deliver goods and services that benefit individuals even if they never leave their home.
• Exemptions negate regressive impact
Sales taxes often disproportionately affect lower-income households. This regressive attribute is alleviated, however, where groceries and other non-discretionary items are exempt from the tax, as they are in Georgia.
• Shares the burden with non-Georgians
Sales taxes are unique among other taxes in their ability to generate revenue from non-Georgia residents. As a family drives from Tennessee to Florida, they pay sales tax on the snacks and fuel they purchase while traveling through Georgia. Delegates to conventions in Atlanta and tourists in Savannah – all of whom will benefit from our transportation infrastructure at some point during their visit – will also pay sales taxes on the items they purchase.
References:
Martin Wachs/RAND Corporation: A Quiet Crisis in Transportation Finance – Options for Texas; Testimony presented before the Texas Study Commission on Transportation Finance on April 19, 2006.
Todd Goldman, Sam Corbett, Martin Wachs/University of California, Berkeley’s Institute of Transportation Studies: Local Option Transportation Taxes in the United States; 2001.
The Committee for the Study of the Long-Term Viability of Fuel Taxes on Transportation Finance: The Fuel Tax and Alternatives for Transportation Funding; 2006.
