Gov. McDonnell Proposes Increasing Sales Tax, Eliminating Gas Tax to Fund Transportation

By Mark Robinson

Capital News Service

RICHMOND – With the General Assembly set to convene, Gov. Bob McDonnell proposed Tuesday increasing Virginia’s sales tax and abolishing its nearly 27-year-old gas tax, making Virginia the first state in the country to do so.

The measures are a part of the governor’s proposed $3.1 billion plan to fund improvements to Virginia’s transportation system over the next five years. The funds would supplement $14 billion of transportation projects already under way in the commonwealth, the most in Virginia’s history.

“Declining funds for infrastructure maintenance, stagnant motor fuels tax revenues, increased demand for transit and passenger rail and the growing cost of major infrastructure projects necessitate enhancing and restructuring the commonwealth’s transportation program and the way it’s funded,” McDonnell said at a press conference.

McDonnell described the state’s gas tax as “outdated” because of inflation and better fuel economy since it was last changed in 1986. He said boosting funding for transportation was the only way to ensure Virginia could continue its economic growth.

Among his proposed changes:

• The current 17.5 cents per gallon gas tax, which accounts for more than 30 percent of the state’s transportation revenues, would be eliminated; instead, the sales tax would increase from 5 percent to 5.8 percent. McDonnell predicted this would generate more than $600 million in additional transportation funds. The 17.5 cent tax on diesel would remain intact.
• To supplement the increase in sales tax, a higher percent of the state’s sales tax would go directly to transportation funds – from .5 cents to .75 cents over the five years.
• The plan would impose an increase of $15 for each vehicle registration, resulting in an average vehicle registration cost of $56 per vehicle, McDonnell said.
• The state would impose an annual $100 alternative fuel vehicle. The governor dismissed the idea that the fee would deter people from buying alternative fuel vehicles. More than 91,000 are currently registered in Virginia.

McDonnell’s plan would use new revenues and more money from the general fund – an approach he said would appease lawmakers on both sides of the aisle. In the past, Republicans have supported using money from the general fund for roads as a core function of government. Democrats, on the other hand, have rejected previous attempts to use general fund dollars for transportation.

The General Assembly will consider the governor’s proposals during the 45-day legislative session that begins Wednesday.

If passed, the measures would take effect July 1. The Republicans hold a majority in the House of Delegates and a tie-breaking vote in the Senate. Lt. Gov. Bill Bolling, who presides over the Senate, expressed support for McDonnell’s plan.