Nebraska gas tax to decrease in New Year

After a series of annual increases to Nebraska’s main gasoline excise tax rate starting in 2016, the rate will not increase in the new year, and the overall cost of the tax will even fall slightly.

You might remember the Nebraska Legislature adopted a gas tax increase in 2015. The bill called for an increase in the state’s gas tax rate by one-and-a-half cents per gallon every year from 2016 through 2019.

The total state gas tax rate in January 2020 will be 29.3 cents a gallon, falling 0.4 cents.

The most recent reduction is due to the structure of the state’s gas tax. While lawmakers approved increases in the “fixed” rate part of the tax, there are two other parts to the tax that are recalculated semi-annually based on the wholesale and average costs of gas in the state.

Here’s how the tax rates changed in recent years, courtesy the Nebraska Department of Transportation:

The 2015 vote to increase the gas tax was the result of a legislative override of the governor’s veto and became an issue in the following legislative election. Memories of the Great Recession and national average gas prices above $3 a gallon were not very far behind us at the time of the hike.

However, since that time, gas prices have not returned to their previous peaks and Nebraska’s price at the pump remains below the national average. ($2.583 nationally vs. $2.425 in Nebraska at this writing according to AAA).

While the main excise tax rate has increased 6 cents a gallon since the tax hike, following the 2020 decrease and changes in the other parts of the tax, the state’s overall take from the gas tax will only be 2.9 cents higher than before the increase and 4.7 cents a gallon higher than it was in 1993.

With a state fee and 18.4 cents federal tax included, the combined gas tax rate will be 48.6 cents a gallon. There’s currently no sales tax on the sale of gasoline in Nebraska, which some states do collect and can be factored into their gas tax ranking.

Gas taxes and other excise taxes are one area where Nebraska’s tax system tends to have a lighter touch compared to some of our other tax rates. According to the Tax Foundation, Nebraska was 24th highest in July 2019. While that still means most states have lower gas tax rates, gas taxes are currently on an increasing trend nationally, and our tax rate is overall much closer to the lowest state than to the highest state.

Overall, it’s debatable whether Nebraskans have really taken notice of either the increases or decreases in the gas tax rate. Gas prices themselves have changed much more from day to day and week to week than the total tax rate has in recent years.

While there are states that get by with lower gas tax rates, Nebraska does do an admirable job of dedicating gas tax revenues to pay for transportation infrastructure without taking on debt.

Even though the current tax rate places Nebraska in a decent competitive position there will be plenty of debates in the future about how to pay for roads and bridges as we continue to become less reliant and more efficient in our use of gasoline to get around. As we use less gas, we’re going to get less financial mileage out of taxing it.