Report: NC 9th highest gas tax in the nation

North Carolina ranks No. 9 in the nation for the highest gas taxes at 40.65 cents per gallon. California was ranked No. 1, at 68.10 cents per gallon, and Alaska was the lowest at 8.95 cents per gallon. The gas tax acts as a user fee that goes to fund the construction and maintenance of roads.

“User fees are a way to attribute the costs of government services to the people who use them, avoiding charging people taxes for things they do not want or use,” according to the report. 

In this state, the tax revenue goes to the Highway and Highway Trust Funds under the North Carolina Department of Transportation (NCDOT) for road maintenance and construction. 

One caveat to the gas tax is the emergence of electric vehicles. This diminishes the gas tax as a practical implementation of the user fee for road use. To close this loophole, many states have considered implementing a vehicle mile traveled (VMT) tax or a mileage-based user fee (MBUF).

Revenue from the gas tax would further decline if Gov. Roy Cooper’s goal of increasing zero-emissions vehicles (ZEVs) to 1.25 million by 2030 is met. Cooper issued this goal in 2022 with Executive Order 246. ZEVs include electric vehicles (EVs) and plug-in hybrids (PHEVs). 

Experts have analyzed these numbers and determined the likelihood of meeting this goal in a recent report from the John Locke Foundation: “Lighting the Path.” If the goal is met, ZEVs will account for 14% of North Carolina’s vehicular fleet by 2030, according to the report. 

“Such an outcome is unlikely, however, even before considering the costs,” reads the report. “It would require the number of new EVs to double every two years, but ZEV registrations have been recently slowing, not increasing.”

Experts assert that should the 2030 goal be met, it would detrimentally impact the funding for North Carolina’s infrastructure.

“If Cooper’s goal of 1.25 million ZEVs is met, it will create an annual funding gap for roads and highways of tens of millions of dollars,” wrote Joseph Harris, Fiscal Policy Analyst at the John Locke Foundation. 

Additionally, the value of tax revenue decreases over time as most states have not adjusted their tax rates to match inflation. 

“North Carolina is one of only five states in which the state government owns more than half of all road miles,” Harris told Carolina Journal. “Consequently, the construction and maintenance of our roads heavily depend on state revenues. In fiscal year 2023, the North Carolina motor fuels tax accounted for 36 percent of all transportation infrastructure funding. However, this revenue source is expected to become insufficient due to increased fuel efficiency and electric vehicles (EVs).”

The annual registration fee for EVs of $214.50 generates about $50 less in revenue for the state than the typical driver of a gasoline-powered vehicle.

“To ensure the state has adequate transportation revenue, policymakers should consider replacing the motor fuels tax and EV fee with a vehicle miles traveled tax (VMT),” Harris added. “A VMT charges drivers per mile traveled, regardless of fuel type. By implementing a uniform rate for all light-duty vehicles, a VMT would enhance fairness in the tax code and address the revenue shortfall.”