Good News At The Pump: New Jersey Will Lower Gas Tax

NEW JERSEY — There's good news coming for drivers in the Garden State, officials said Tuesday.

New Jersey's gas tax will go down by 8.3 cents to a total of 42.4 cents per gallon on Oct. 1, according to the state Department of the Treasury. The reduction is part of an annual process mandated by law.

It’s a formula that New Jersey’s heads of state have little power over, whether they're Republicans such as former Gov. Chris Christie or Democrats like Gov. Phil Murphy (learn more below).

“As we've noted before, any changes in the gas tax rate are dictated by several factors that are beyond the control of the administration,” state treasurer Elizabeth Maher Muoio said last year.

Muoio said the reduced gas tax will still provide New Jersey with "billions of dollars" to support critical transportation infrastructure needs.

New Jersey’s current rate is 50.7 cents, among the highest in the nation. For an average-size sedan with an 18-gallon gas tank, that comes to more than $9 per fill up in taxes.

The state’s per-gallon gas tax has shot up significantly since a major funding overhaul in 2016, going from 14.5 cents to 50.7 cents, NJ Spotlight reported.

Officials said that a "swifter than expected" economic recovery from the coronavirus pandemic helped to make the tax reduction possible.

"Last year, the Treasury Department estimated that consumption of gasoline and diesel fuel in FY 2021 was projected to decline by 15.6 percent from pre-pandemic levels in FY 2019 and 20.2 percent from the FY 2016 baseline consumption level when the law was established. However, because of the swifter than expected economic recovery, consumption of gasoline and diesel fuel in FY 2021 only declined by 13.6 percent from pre-pandemic levels in FY 2019 and 18.3 percent from the FY 2016 baseline consumption level. Because actual consumption in FY 2021 was in line with projections, the PPGR tax rate did not need to be increased to make up for any shortfall in highway fuel revenue collections from the prior fiscal year."

GAS TAXES IN NJ: A QUICK BACKGROUND

What is generally called the “gas tax” or the “highway fuels tax” is actually two separate fees on gasoline and diesel fuel - the Motor Fuels tax and the Petroleum Products Gross Receipts (PPGR) tax.

When drivers pay gas taxes in New Jersey, the money goes into its Transportation Trust Fund (TTF), which support repairs and renovations to the state's roadways and bridges.

To make sure that the state has the funds to support these projects, a 2016 law dictates that the gas tax rate must be adjusted to generate roughly $2 billion per year. Outside factors such as federal aid or the state sales tax can help to meet this target goal.

Under state law, officials are required to analyze gas-tax collection figures each year by the middle of August. If revenues aren’t high enough to cover all the state’s planned road construction projects, an automatic tax hike kicks in. On the other hand, if the rate is creating a surplus, officials have the power to drop the rate.

Under the formula explicitly outlined in the 2016 law, the PPGR tax rate will decrease on Oct. 1, going from 40.2 cents to 31.9 cents for gasoline and from 44.2 cents to 35.9 cents for diesel fuel. When combined with the Motor Fuels Tax, which is fixed at 10.5 cents for gasoline and 13.5 cents for diesel fuel, the total tax rates that motorists will pay for gasoline and diesel fuel will be 42.4 cents and 49.4 cents, respectively.

The rate was last changed in 2020, when the state tried to dig itself out of a financial hole caused by the coronavirus crisis. With less drivers hitting the roads and less fuel being used, officials increased the gasoline tax by 9.3 cents per gallon to help make up the difference.

According to a July report from the nonprofit Tax Foundation, New Jersey’s current tax of 50.7 cents per gallon is among the highest in the nation, behind only California (66.98 cents), Illinois (59.56 cents) and Pennsylvania (58.7 cents). The lowest gas taxes are in Alaska (14.98 cents per gallon), Missouri (17.42 cents) and Mississippi (18.79 cents).

It’s worth keeping in mind that a high gas tax doesn’t necessarily mean a state’s motorists are being ripped off, especially if the money goes towards road upkeep or construction.

According to the Tax Foundation:

“While few taxpayers are cheerleading gas taxes, these systems embody the ‘benefit principle’ of taxation relatively well. This public finance concept holds that the taxes a person pays should relate to the government services that person receives. In general, drivers benefit from the services that their gas tax dollars pay for, like road construction, maintenance and repair. Because gas taxes connect drivers to the costs of road upkeep, they encourage efficient road use, which helps limit congestion and the wear and tear that comes from overuse.”

“Before the TTF law was changed in 2016, governors and lawmakers relied heavily on new borrowing to fund road, bridge and rail-network improvements, which eased pressure on the state gas tax,” NJ Spotlight reported. “But New Jersey’s transportation infrastructure suffered as a result.”

Learn more about how the state's gas tax is calculated here.

• See related article: 502 Bridges In NJ Are Among Those Nationwide Needing Repair
• See related article: New Jersey Considers Replacing Gas Tax

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