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Motor Vehicle Fuel Taxes and Registration Fees

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Overview

Registration fees are paid annually per vehicle, and the rate varies depending on the type of vehicle.  For example, the registration fee for an automobile is $15, a motorcycle is $4.50 and commercial trucks are $18 to $1,140 depending on registered weight.  This is the amount that is deposited in the Highway Trust Fund for use for the highways, streets, and roads of the state.  The owner of the vehicle also pays $1.75 per registration for the Recreation Road Fund, $1.50 per registration to the Department of Motor Vehicles Cash Fund, $2 that is retained by the counties, and 50 cents to the Nebraska Emergency Medical Systems Operations Fund.

The motor fuel tax currently totals 27.1 cents per gallon.  Of this amount, 14.6 cents is levied for state highway purposes only, 2 cents is levied for city and county street and road purposes only and 12.5 cents is deposited in the Highway Trust Fund which is divided 53 1/3 percent for state highways, 23 1/3 percent for city streets and 23 1/3 percent for county roads and bridges.  The Highway Trust Fund also receives motor vehicle registration fees and all state sales taxes levied on motor vehicles.

The city distribution formula is based on population, number of registrations and lane miles of city streets.  The county formula considers similar factors plus the number of bridges and the volume of farm products produced in the county.

Tax Policy and Excise Taxes

Adequacy - Because excise taxes are usually based on physical amount sold, the stability of the tax base is very good.  However, excise taxes grow more slowly than any other state tax.  Cigarette taxes, in fact, have been declining for a number of years from a rate neutral standpoint.

Equity - Excise taxes are regressive.  They are even more regressive than general sales taxes because of the consumption pattern of low-income people.  These taxes are also not horizontally equitable because similar taxpayers do not necessarily consume similar amounts of products subject to excise taxes.

However, there is satisfaction of the benefits principle with regard to motor vehicle fuel taxes and registration fees.  Those who use streets, roads and highways the most tend to pay the most.  This benefits principle is served by using other excise taxes as well.

Simplicity - Excise taxes are usually levied at the wholesale level, reducing the number of tax collectors the state has to deal with.  The tax is then passed on to the consumer automatically, simplifying collection from the taxpayer point of view.

Economic competitiveness - As consumption taxes, excise taxes are not generally paid by business as a condition of locating here.  For example, interstate trucking companies pay Nebraska gas tax based on the amount of business done here on an equal basis with other competitors.  In other words, the gas tax is apportioned to Nebraska based on mileage in the state.  Therefore, locating in Nebraska does not necessarily mean a higher gas tax burden even though the motor fuel tax is high here.

Excise taxes do have an impact on retail business near the state border where there are significant differences in rate.  Excise taxes also reduce consumption overall.  Many people cite this as a positive feature especially with regard to cigarettes, alcohol, or even motor fuel.

Motor Vehicle Fuel Tax

  1. History.  There has been a motor fuel tax in Nebraska since April 1, 1925.  Since that time the proceeds from that tax have been committed to the construction, repair, and maintenance of roads and bridges in Nebraska.  The tax generates more than $300 million annually.

  2. Base.  There are a number of different taxes imposed that constitute what most people call the gas tax.  The motor fuel tax of 12.5% is a statutorily set rate that is divided between state, city and county road funds.  It is a cents-per-gallon tax collected at the wholesale level, and levied on the consumer.  The special fuels tax is on multi-purpose fuel, such as diesel or propane, and is levied at the retail level, where it is established that it will be used for transportation on the roads and highways of the state.  It is also levied on a cents per gallon basis.  The law provides for dyed diesel fuel to be sold for off-road purposes free from tax.

    The variable excise tax portion of the gas tax is levied as a percent of the wholesale price.  As of July 1, 2006, the rate was 14.6 cents per gallon.  (NEB. REV. STAT. Sections 66-4,140 through 66-4,144.)  The tax for aircraft and jet fuel is also assessed on a cents per gallon basis.

    Exemptions and deductions

    Exemptions are sales into another state, sales to the United States or its agencies or corporations, sales to Metropolitan Transit Authorities, and sales to a tribe member on the reservation.  Also, wholesalers are allowed to deduct a commission of 5% of the first $5,000 of tax collected per month and 2.5% of amounts in excess of $5,000.  For all fuel types, that is gasoline, diesel, and aircraft fuel, the commission costs $6.5 million annually.  Use of undyed diesel for non-highway purposes allows the user to receive a refund of the diesel fuel tax paid.  These refunds total about $7.3 million annually.

  3. Rate.  As mentioned before, the statutorily set motor fuel and special fuel rate is 12.5 cents per gallon.  (NEB. REV. STAT. Section 66-489 and 66-4,105.) Gasoline blended with ethanol received a two-cent per gallon break from this tax through Dec. 31, 1992, but currently there is no preference given gasohol.  The variable excise tax rate is currently 14.6 cents, but is set semi-annually by the Department of Roads at whatever rate is necessary to fund appropriations for state highways.  As of July 1, 2006, the total per gallon motor fuel and special fuel tax rate was 27.1 cents.  The rate for aircraft gasoline is 5 cents per gallon, and the rate for jet fuel is 3 cents per gallon.

    The petroleum release remedial action fee is imposed upon the importer, refiner, or distributor who first sells, offers for sale, or uses petroleum in Nebraska.  The fee is 0.9 cents per gallon on motor vehicle fuels, such as gasoline and gasohol, and 0.3 cents on all other petroleum products.

    Revenue from the fee is placed in the Petroleum Release Remedial Action Cash Fund for purposes of paying claims for reimbursement of persons responsible for remedial actions on releases and for investigations and expenses of the Department of Environmental Quality.

    With the enactment of LB 1065 in 2004, $1.5 million will be transferred annually from 2004 through 2011 from the Petroleum Release Remedial Action Fund to the Ethanol Production Incentive Fund to help pay for incentives to produce ethanol in the state.

  4. Administration/Disposition.  All motor fuels taxes are collected from distributors and administered by the Motor Fuel Division of the Nebraska Department of Revenue.  The portion of the proceeds that is deposited in the Highway Trust Fund for distribution to the state, cities, and counties for use in building, repairing, and maintaining roads and bridges is distributed in the following manner:

    1. The amount in the Highway Allocation Fund is distributed equally to municipalities and counties based on a formula.

    2. The county distribution formula is based on seven weighted factors:
      1. Rural population - 20%;
      2. Total population - 10%;
      3. Lineal feet of bridges 20 feet or more in length - 10%;
      4. Rural motor vehicle registrations - 20%;
      5. Total motor vehicle registrations - 10%;
      6. Miles of county and township roads - 20%;
      7. Value of farm products sold - 10%.

    3. The municipal distribution formula is based on three weighted factors:
      1. Population - 50%;
      2. Vehicle registrations - 30%;
      3. Lane miles - 20%.

Motor Vehicle Registration Fees

  1. Base and Rate.  Registration fees are paid annually per vehicle, and the rate varies depending on the type of vehicle.  For example, the registration fee for an automobile is $15, a motorcycle is $4.50 and commercial trucks are $18 to $1,140 depending on registered weight.  The owner of the vehicle also pays $1.50 per registration for the Recreation Road Fund, $1.75 per registration to the Department of Motor Vehicles Cash Fund, $2.00 that is retained by counties for general purposes, and 50 cents to the Nebraska Emergency Medical Systems Operations Fund.  Registration fees deposited in the Highway Trust Fund total about $75 million annually.  (NEB. REV. STAT. Section 60-301 et. seq.)

    When new license plates are issued, a per plate fee is charged to cover the cost of manufacturing plates and the five renewal tabs that may be issued over the life of the plate.  The fee is not to exceed $3.50.  (NEB. REV. STAT. Section 60-3,102.) Proceeds of this plate charge are deposited in the Highway Trust Fund to replace money transferred from the Trust Fund to manufacture the plates.  Additional fees are shown below.

    Exemptions and deductions

    Exempt from motor vehicle registration fees are motor vehicles used for off-road purposes, those owned by the United States Government, the state, municipalities, counties, and schools, or any authority engaged in public transportation, one vehicle used by a disabled veteran, those owned by Indians and registered by the tribal government, and vehicles owned by agricultural societies and educational, charitable, religious, and cemetery organizations that are property tax exempt.  Farm trucks are granted preferential rates relative to commercial trucks registered for the same weight.  This preference for farm trucks totals $25.8 million according to the 2004 Tax Expenditure Report.

  2. Administration and Disposition.  The county treasurers collect registration fees.  Two dollars per registration are retained by the county as an issuance fee ($5 if the registrant is a non-resident), $1.75 is deposited in the Department of Motor Vehicles Cash Fund, $1.50 per registration is deposited in the Recreation Road Fund, and 50 cents to the Nebraska Emergency Medical System Operations Fund.  The remaining proceeds are deposited in the Highway Trust Fund, where they are combined with gas tax receipts and sales taxes on motor vehicles.  The Highway Trust Fund is for building, repairing, or maintaining roads and bridges.  Fifty three and one-third percent of the Highway Trust Fund goes to the Department of Roads for state highways and bridges, 23 1/3 percent for counties, and 23 1/3 percent for cities.
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