Gas tax will jump 3.9 cents higher Jan. 1, to a record-high 38.9 cents per gallon

Pump prices are falling, but North Carolina's gas tax will rise by 3.9 cents on January 1 to an all-time high of 38.9 cents a gallon, the N.C. Department of Revenue said.

Only four states have higher gas taxes. Fortunately, if recent price trends continue, drivers can expect the North Carolina tax rate to fall again next July.

The Republican-controlled General Assembly cut other taxes and curbed state spending this year. But legislators also increased state spending for roads and bridges -- and they could not agree on whether to limit the state gas tax, which pays for more than half the total transportation budget.

The House voted overwhelmingly in November to cap the tax at its current level, 35 cents. But the Senate adjourned without taking up the bill, so the law allowing a tax increase Jan. 1 was left unchanged.

The gas and diesel tax rate is recalculated every six months, floating up or down to reflect changes in wholesale fuel prices.  The tax is 17.5 cents a gallon plus 7 percent of the average weighted wholesale price.

When the 38.9 cents is added to a one-quarter-cent inspection fee on each gallon, plus the federal tax of 18.4 cents, North Carolina's new combined state and federal gas tax and fees rate will be 58.55 cents per gallon. Only four states - Connecticut, California, New York and Hawaii - have higher gas taxes and fees now, according to the American Petroleum Institute.

The same state diesel tax and fees will be combined with a 24.4-cent federal diesel tax, for a new total diesel rate of 68.55 cents -- higher than all but six other states.

Even though the gas prices paid by North Carolina drivers have declined in the second half of the year, the January tax rate is based on national wholesale prices for the months of April through September -- when they were higher, on average, than in preceding months. The N.C. Department of Revenue calculated that weighted wholesale price at $3.054 per gallon.

Retail gas prices peaked this year in mid-May, $3.872 per gallon for self-service regular in the Triangle. Tuesday's average was $3.240.

The monthly wholesale averages have fallen accordingly.  If those trends are not reversed sharply in the next three months, the state tax rate is expected to decline in July.

"Look at the October, November and December prices, said Donna Alderman, assistant director of the Department of Revenue's Excise Tax Division. "Unless it takes a massive turn going up again, the [tax] should go down."