Overview

Registration fees are paid annually per vehicle, and the rate varies depending on the type of vehicle. For example, the registration fee for an automobile is $15, a motorcycle is $4.50 and commercial trucks are $18 to $1,140 depending on registered weight. This is the amount that is deposited in the Highway Trust Fund for use for the highways, streets, and roads of the state. The owner of the vehicle also pays $1.75 per registration for the Recreation Road Fund, $1.50 per registration to the Department of Motor Vehicles Cash Fund, $2 that is retained by the counties, and 50 cents to the Nebraska Emergency Medical Systems Operations Fund.

The motor fuel tax currently totals 27 cents per gallon. Of this amount, 14.5 cents is levied for state highway purposes only, 2 cents is levied for city and county street and road purposes only and 12.5 cents is deposited in the Highway Trust Fund which is divided 53 1/3 percent for state highways, 23 1/3 percent for city streets and 23 1/3 percent for county roads and bridges. The Highway Trust Fund also receives motor vehicle registration fees and all state sales taxes levied on motor vehicles.

The city distribution formula is based on population, number of registrations and lane miles of city streets. The county formula considers similar factors plus the number of bridges and the volume of farm products produced in the county.

Tax Policy and Excise Taxes

Adequacy - Because excise taxes are usually based on physical amount sold, the stability of the tax base is very good. However, excise taxes grow more slowly than any other state tax. Cigarette taxes, in fact, have been declining for a number of years from a rate neutral standpoint.

Equity - Excise taxes are regressive. They are even more regressive than general sales taxes because of the consumption pattern of low-income people. These taxes are also not horizontally equitable because similar taxpayers do not necessarily consume similar amounts of products subject to excise taxes.

However, there is satisfaction of the benefits principle with regard to motor vehicle fuel taxes and registration fees. Those who use streets, roads and highways the most tend to pay the most. This benefits principle is served by using other excise taxes as well.

Simplicity - Excise taxes are usually levied at the wholesale level, reducing the number of tax collectors the state has to deal with. The tax is then passed on to the consumer automatically, simplifying collection from the taxpayer point of view.

Economic competitiveness - As consumption taxes, excise taxes are not generally paid by business as a condition of locating here. For example, interstate trucking companies pay Nebraska gas tax based on the amount of business done here on an equal basis with other competitors. In other words, the gas tax is apportioned to Nebraska based on mileage in the state. Therefore, locating in Nebraska does not necessarily mean a higher gas tax burden even though the motor fuel tax is high here.

Excise taxes do have an impact on retail business near the state border where there are significant differences in rate. Excise taxes also reduce consumption overall. Many people cite this as a positive feature especially with regard to cigarettes, alcohol, or even motor fuel.

Key Points from the Analysis

1. Registration fees are declining in relative importance to the state and local tax system, but motor vehicle fuel tax growth has come closer to keeping pace with the growth in the economy. Registration fees are set at a fixed amount per vehicle so the only natural increases are those that occur when more vehicles are registered in the state. This growth is not fast enough to keep pace with the growth in the economy absent frequent rate increases.

Motor vehicle fuel taxes, on the other hand grow whenever the rate is increased or more miles are traveled. The variable gas tax system has allowed rates to creep higher to keep pace with the state highway program costs. Also, longer commuting distances, more vacation driving, and the rapid growth in sales of gas-hungry SUVs all contribute to the growth rate of motor fuel tax receipts. Looking only at the past eight years, the historic rate of growth has dropped off. Since fuel prices have reached all-time highs recently, people could cut back on their driving and this trend may continue.

The growth of both of these tax sources in relation to the growth in the economy and inflation may be viewed by clicking on the items in the legend box in the chart below.

[ Click on an item in the box in the chart
above to view related information. ]

2. Nebraska has high motor vehicle fuel taxes. According to the Federation of Tax Administrators' web site of tax rates, Nebraska ranked tied for 7th in motor vehicle fuel tax rate per gallon as of Jan. 1, 2007. This source includes the Petroleum Release Remedial Action Fee in addition to the statutory and variable tax rates. Other adjoining states were Kansas - 15th, Colorado and South Dakota - 22nd, Iowa - 24th, Missouri - 42nd and Wyoming - 50th.