June 2016

Will You Notice That One-Cent Difference?

By Amy K. Frantz

As Governor Branstad said recently at a bill signing, it is relatively rare for the government to ever take away a tax, so we should make note of it when it happens. The bill he was referring to, which was adopted by the Iowa Legislature in April and signed by the Governor in May, will reduce the fuel tax in Iowa by one cent.  Although, considering the fuel tax was raised by ten cents last year, you may hardly notice the difference.

The one cent in question was added to the fuel tax back in 1989. This “Environmental Protection Charge” (EPC) was to be dedicated to help clean up leaking underground petroleum storage tanks through the Underground Storage Tank (UST) program. The UST program issued bonds for the cleanup costs which would be repaid with the EPC revenue.  And while the revenue from that EPC one cent tax was still nominally going toward that cause, it was doing so in a more roundabout way than adopted in 1989.

According to the background information contained in a report prepared for a meeting of the Iowa Comprehensive Petroleum Underground Storage Tank Fund Board, “Through the operation of the program the Legislature has made changes, diverted monies and tasked the Board with projects outside that original scope.” In 1990, the year after the UST’s creation, “the source of monies for the UST Fund was changed to receive portions of the automobile use tax; the EPC was then directed to the Road Use Tax Fund (RUTF). In 2008, following changes to the RUTF, the main source of funding was shifted to the Statutory Allocations Fund (SAF) which derives its monies from driver’s license fees, trailer registration fees, etc. In FY 2015, the EPC fee deposits to the RUTF were approximately $21.6M, while the UST Fund received $14M from the Statutory Allocations Fund.”[1]

Jeff Robinson of the Legislative Services Agency for the Iowa Legislature writes that the 1990 change was made “due to concerns that the EPC might be deemed a tax on motor vehicle fuel and therefore subject to Constitutional restrictions,”[2] which provides that  “All motor vehicle registration fees and all licenses and excise taxes on motor vehicle fuel, except cost of administration, shall be used exclusively for the construction, maintenance and supervi­sion of the public highways exclusively within the state or for the payment of bonds issued or to be issued for the construction of such public highways and the payment of interest on such bonds.”[3]  I guess that’s why they called it a charge, rather than a tax, as if there is much of a difference.

The EPC went through some additional changes. “As originally enacted, the EPC did not sunset. A sunset date of June 30, 2014, was added by the 2003 General Assembly and that date was extended by the 2004 General Assembly,”[4] to June 30, 2016.  The bill that was recently signed extends the EPC to December 31, 2016 before finally letting the one cent tax expire.

We should be happy, as citizens, that the projections show that the UST program can complete its assigned task of cleaning up leaking petroleum storage tanks with its remaining fund balance. We should also be happy, as taxpayers, that elected officials have chosen to eliminate a tax (or charge) once it has completed its purpose, rather than simply diverting those funds for another use.  But I’m not sure, as you are filling your tank next year, that you will notice much of a difference in what you pay!

Amy K. Frantz is Vice President of Public Interest Institute.

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation.  They are brought to you in the interest of a better-informed citizenry.

[1] “Conceptual Plan for Termination of the Iowa Comprehensive Petroleum Underground Storage Tank Fund,” prepared for the April 22, 2016 meeting of the Iowa Comprehensive Petroleum Underground Storage Tank Fund Board, posted on the Iowa Department of Natural Resources website, <http://www.iowadnr.gov/Environmental-Protection/Land-Quality/Underground-Storage-Tanks/UST-Fund-Board> accessed May 25, 2016.

[2] Jeff Robinson, “Underground Storage Tax Program Financial Outlook,” Legislative Services Agency Issue Review, November 10, 2014, <https://www.legis.iowa.gov/docs/publications/IR/402512.pdf> accessed May 25, 2016.

[3] Constitution of the State of Iowa, posted on Public Interest Institute website, <http://www.limitedgovernment.org/publications/Iowa%20Constitution%202011.pdf> accessed May 27, 2016.

[4] Jeff Robinson, “Environmental Protection Charge – Future Repeal,” Legislative Services Agency Issue Review, November 12, 2014, <https://www.legis.iowa.gov/docs/publications/IR/402468.pdf> accessed May 25, 2016.