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December 2013 Policy Study, Number 13-10


Fuel Tax:  What Is a Fair System for Iowa?


Iowa Department of Transportation Solutions



In addition to the solutions laid out in the report from the NGA, the IDOT just recently released a two-page list of ideas to address the transportation funding shortfall. Their suggestions are:


• Everyone pays 6 percent for new vehicle registrations vs. the current 5 percent
• Ensure equity of user fees
• Align transportation funding to a growth trajectory as Iowa’s economy strengthens
• Provide incentives to improve rural bridges and road conditions
• Ensure competitive transportation options for shipping products and moving people[46]


They are proposing to increase the permit fee for oversize/overweight vehicles. This will generate approximately $10 million per year. The IDOT is predicting that this increase to 6 percent will generate $60 million annually. They also feel that the federal funding Iowa receives should be focused on the primary road system.[47]


They are recommending that the state do away with the fuel tax and switch to a state excise sales tax on fuel. Along with that they want to allow local-option-sales taxes on fuel sales. Additionally, the recommendations include taxing “dyed fuel.” Currently in the state of Iowa if you are purchasing diesel for agricultural purposes, you don’t have to pay fuel tax on it. But nowadays most farmers do utilize the road system to access fields and for transporting grain to the elevators.[48] “Dyed diesel” is diesel with dye that may be purchased tax free based on the use of the diesel. This diesel fuel “is sold for use in farm, construction, and other types of equipment that do not travel under their own power on public roads, except for short distances such as between farm fields.”[49] During 2012, if dyed diesel was taxable it would have generated $33 million.[50]


These are some of the ideas from the IDOT proposal which will be addressed as the Legislature convenes in the new year.




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