Alert March 29, 2010

Governor Signs "Gas Tax Swap" Bills

Despite earlier indications that California Governor Arnold Schwarzenegger would veto ABX8 6 and ABX8 9, the so-called “gas tax swap” bills, the Governor apparently had a change of heart and recently signed both measures.

Currently, motor vehicle fuel is subject to both a 6% sales tax and an 18 cent per gallon excise tax.  The use of proceeds from the sales tax is restricted to transportation-related activities, while revenues derived from the excise tax may be used for other general fund purposes.  Under ABX8 6, as of July 1, 2010, motor vehicle fuel will become exempt from the sales tax and subject to a 17.3 cent per gallon increase in the excise tax, thereby providing the state government with more fungible revenues to help heal its troubled budget.  In an effort to assuage the loss of transportation funds, ABX8 9 allocates $400 million to state transit agencies and provides for an additional $350 million annually starting in 2012.