State Highway Finance and User Taxation in Indiana

This research was designed to examine the alternatives available for increasing highway user revenue in Indiana, as well as how other states are handling these revenue problems. A questionnaire survey regarding current financing and taxation policies sent to the states, showed a definite need for increased highway revenues to meet escalating costs in most states. Many states indicated they are seriously studying a motor fuel tax which would, in some way, be indexed to inflation. A promising method of increasing revenues appears to be the adoption of an ad valorem tax, similar in nature to a sales tax, on motor fuel consumption. As a consequence of this research, three major alternative examples for increasing highway user revenue were examined. The first example included reproportioning of Indiana's registration and motor vehicle fees upward to compare with national averages. The second example involved increasing motor fuel revenues by a one-cent per gallon tax increase or adoption of a 20 percent ad valorem tax in lieu of the present motor fuel taxation structure. The final example combined an ad valorem tax with a reproportionment of user fees to national averages. Under conservative assumptions, this last example generated an additional 92 million dollars for highways or over twice the additional revenues generated by any of the other examples. Using the criterion of revenue generating capabilities and compatibility with methods an procedures presently utilized for collection of fuel taxes, a proposal including an appropriate ad valorem tax appears to be most beneficial.