Study finds vehicle sales tax more volatile than fuel tax

The Sycamore Institute, founded in 2015 by former state Sen. Jim Bryson of Franklin (also the Republican nominee for governor in 2006) and billing itself as a “nonpartisan policy research center for Tennessee,” has issued a 20-year comparison of state fuel tax revenue and sales tax revenue from vehicle sales taxes.

The accompanying chart shows state sales taxes on vehicles dipped by nearly 20 percent during the 2008 recession. Fuel taxes dipped by about 5 percent during that time.

News release from the Sycamore Institute

The Tennessee Senate and House of Representatives are both scheduled to vote on Governor Haslam’s IMPROVE Act this week. The bill would pay for a $10.5 billion backlog of transportation projects by raising gasoline and diesel taxes while cutting other taxes. Effectively, it shifts some of the state’s robust General Fund revenue growth to the Highway Fund.

Some members of the General Assembly have proposed using sales tax revenues from car sales instead of raising the gas tax. We created the chart below to visualize how the two revenue sources being discussed have grown or shrunk over time.

Long-Term Trends in the Magnitude and Direction of Change

The chart shows how gas tax revenues and taxable auto dealer sales have changed each year compared to the year before. Looking at the data this way reveals long-term trends in the magnitude and direction of annual change.

A Choice with Trade-Offs

The data shows that gas tax collections in the last two decades have been relatively stable from one year to the next. Automobile sales during the same period have experienced more overall growth with higher volatility. Lawmakers should weigh the trade-offs of both revenue sources when considering how they will vote later this week.