Alternative Fuels Tax Reduction Act Becomes Law

A new law passed by Governor Fallin today (May 3, 2011), HB1815, reduces the levy of motor fuel taxation for compressed natural gas from sixteen cents ($0.16) per gallon or gasoline gallon equivalent to thirteen cents ($0.13) per gallon but to have a rate of tax imposed at five cents ($0.05) per gasoline gallon equivalent for a period of time sufficient to allow for the development of compressed natural gas distribution systems.  The bill defines “compressed natural gas” as a volume of natural gas consisting primarily of methane which has been reduced to approximately one percent (1%) of its original volume for purposes of storage and for use as a fuel in motor vehicles.  The bill further provides for apportionment of revenue created by the levy on compressed natural gas and would require a fuel vendor license.  The bill would further modify the definition of “special fuel” to exclude compressed natural gas for purpose of levying the special fuel tax of $100.00 per year.

The CS for HB 1815 removes CNG from the special fuels list and the flat decal fee, levies a $0.05 per gasoline gallon equivalent (gge) and provides for revenue apportionment to that of the gasoline excise tax through tax year 2014 (the data at which a clean burning fuel income tax credit expires) at which time the levy is increased to tax rate for gasoline on a gge basis.

Special fuel decal fee revenue is deposited in the General Revenue Fund, while the apportionment of the per gge levy will include fractional apportionment to the State Transportation Fund, public transit and passenger rail funds and local governments. The Tax Commission estimates taxable volume of CNG of two million gge in FY-12. The Commission is preparing a comparison of decal revenue to that of the levy included in the measure.

At the time the tax rate becomes the equivalent of the of the excise tax on gasoline, the revenue which may be collected on the levy will depend on the volume of taxable gge sold at that time.

The Legislature states that it would promote the development of desirable alternative energy sources to modify the existing taxation scheme for compressed natural gas by lowering the nominal rate of motor fuel taxation for compressed natural gas.