"Gas Tax Swap" Sends Calif. Gas Prices Up 3.5 Cents

California tax law is full of confusing formulas with colorful names, like the triple flip and the single sales factor.  Here, we’re talking about something called the gas tax swap.  It stems from the 2010 budget deal in the heart of the recession.

Republican Board of Equalization member George Runner was in the legislature at the time.  He says state lawmakers and former Governor Arnold Schwarzenegger were looking everywhere to balance the budget.  “They found some money in a special fund.  And they basically took a billion dollars out of that, and they had to replace it.  And they replaced it with this very confusing gas swap,” Runner said.

There are two taxes on gasoline: the sales tax, based on how much money you spend, and the excise tax, based on how many gallons of gas you buy.  The deal reduced the sales tax but required annual adjustments to the excise tax to make up for the lost sales tax revenue.  And that’s why the excise tax is going up from 36 cents a gallon to 39.5 cents.