Alabama Legislature

Bills Would Limit Cities’ Gas Tax Spending

MONTGOMERY — Legislation in the State House would prevent local municipalities and counties from spending local gas tax revenue on anything other than roads and bridges.

Alabama law says revenue from gasoline and other motor fuel taxes levied by the state can be used only for infrastructure and similar uses, but there are no such restrictions on the local gas taxes collected by hundreds of governments.

House Bill 556 by Rep. Chris Sells, R-Greenville, and Senate Bill 281 by Sen. Shay Shelnutt, R-Trussville, says that all taxes on motor fuels, “whether called an excise tax, license tax, or otherwise, levied by a municipality or county or by local law may be used only for road and bridge construction and maintenance.”

Shelnutt’s version of the bill has been approved in the Government Affairs Committee and awaits a Senate vote. He did not return a call requesting comment on the bill.

The Petroleum and Convenience Marketers of Alabama is behind the bills. The group’s members own more than 4,000 gas stations and convenience stores in Alabama.

President J. Bart Fletcher said should the legislation pass, it would be municipalities most affected because they can pass local gas taxes on their own. Counties cannot and most go through the Legislature.

Fletcher said the bills are results from conversations that started in 2019 when the state was considering a 10-cent-per-gallon tax increase. Local communities were in favor of it because they would get a portion of the new revenue, “indicating they needed additional revenue,” Fletcher said.

“What we found is that in an overwhelming percentage of the cases, the local motor fuel tax at city, or municipal level, the funds from the local motor fuels tax are being used for things other than roads and bridges,” he said.

“… We just really feel like the motor fuels tax is a user fee. It was designed to be to be collected and the funds used for the maintenance of roads and bridges and various other things. For cities to divert motor fuels taxes to other things, and then come to the Legislature and ask for an increase in the statewide tax because they don’t have enough money to do their road work kind of seems a little backward to us.”

Sells said he understands the intention of wanting gas tax revenue spent on roads. He filed his bill last week and said he hasn’t gotten much response to it yet.

If the legislation becomes law, municipalities could use local gasoline tax revenue only for purposes other than roads and bridges if local voters approve the designated use.

Municipalities could continue to use local gas tax revenue for non-road uses for up to five years after the law is enacted.

Nearly 300 municipalities and 28 counties have their own local gas taxes, according to the Alabama Department of Revenue. Many of them are 1 cent. The largest is 9 cents per gallon in Eufaula, where a tax increase last year was pledged to fixing roads, according to local media reports.

The Alabama League of Municipalities is opposed to the bills. Executive Director Greg Cochran said cities’ ability to tax motor fuel at the local level comes from their business license authority and it’s not an excise tax like the county or state imposes.

“We understand why the county and the state limit the use of those funds to road and bridge construction and maintenance,” Cochran said. “But for us with business licenses, we would prefer the Legislature not get into earmarking how our business license monies should be utilized in a community. Leave that up to the local officials.”

Cochran said municipalities have a per-gallon tax on motor fuels, others may have a flat fee on the number of pumps a gas station has. Another option is a tax on gross receipts from a convenience store, including gas sales.

Cochran said it’s not uncommon for municipalities to use the gas tax revenue to pay for a bond or other non-road expense.

“In their eyes, it’s another data point for collecting the business licenses,” he said.

Fletcher said varying gas taxes between municipalities can create a “competitive imbalance” across city lines for gas station operators.

“If we can require that any new local option taxes are used for what we think are their intended purposes for roads and bridges, then perhaps you at least slow down the desire of municipalities to use the motor fuels taxes for a source of revenue outside of roads and bridges,” he said.