The Tennessee legislature gave final approval on April 24 for the “Improving Manufacturing, Public Roads and Opportunities for a Vibrant Economy” (IMPROVE) Act, a bill that will:
- Gradually increase the state gas tax by 6 cents-per-gallon (beginning with a 4-cent increase on July 1 and a 1-cent increase every July 1 for the next two years) and the diesel tax by 10 cents-per-gallon;
- Create an annual $100 road user fee on electric vehicles and increase taxes on alternative fuel;
- Raise vehicle registration fees by $5 for Class A through Class H vehicles, by $10 for private and commercial motor vehicles operating for hire and who transport passengers, and by $20 for trucks and truck tractors;
- Permit municipalities to seek voter approval for a surcharge on their local privilege taxes to be dedicated to public transit projects.
All revenue, including an annual 2 percent diversion to the state’s General Fund, will be dedicated to transportation purposes.
In order to balance the increased transportation funding and offset the increase in user fees, the bill will reduce the state’s sales tax on groceries, decrease the franchise and excise tax paid by businesses, and phase out the Hall income tax. The tax cuts are estimated to total $300 million after full implementation.
The IMPROVE Act— also called the “2017 Tax Cut Act”— is expected to generate $350 million annually for transportation funding, with $245 million of the revenue allocated to the Tennessee Department of Transportation, $35 million to cities, and $70 million for counties.
The House voted 60-37 to advance the bill on April 19 after numerous hours of debate on proposed amendments, including proposals to eliminate the motor fuel tax increase, utilize revenue from the state’s budget surplus and reallocate a portion of the state sales tax for transportation purposes. The Senate picked up the bill later the same day and voted 25-6 to approve with bipartisan support, but added an amendment to increase property tax relief for disabled veterans and sent the legislation back to the House for final approval. On April 24 the House voted 67-21 to send the bill to the governor.
April 26 Update: Gov. Bill Haslam (R), a vocal advocate of the IMPROVE Act, signed the bill into law on April 26.
Tennessee is the fourth state to legislatively increase its gas tax in 2017, and the 21st state since 2013. Read ARTBA-TIAC’s case studies for details on previous state gas tax increases, and visit the ‘State Legislation’ page for information on what other states are doing in 2017 to increase transportation funding. Read a summary of the other state gas tax increases legislatively approved this year below.