HIGHWAY INFORMATION UPDATE

Vol. 3 No. 1

August 3, 1998

Federal Highway Administration

Office of Highway Information Management

TEA-21 and Estimation of Highway Trust Fund Tax Receipts Attributable to Highway Users in Each State

To a far greater degree than before, the Transportation Equity Act for the 21st Century (TEA-21)(Public Law 105-178) makes use of estimated Highway Account of the Highway Trust Fund (HTF) "receipts attributable to highway users in each State" (commonly referred to as "trust fund contributions") to apportion Federal-aid highway funds to the States.

TEA-21 calls for the use of trust fund contributions in apportioning 35 percent of the Surface Transportation Funds. One-third of Interstate Maintenance funds are distributed based on Highway Account contributions by commercial vehicles, that is contributions resulting from diesel fuel tax, truck tire tax, truck and trailer retail sales tax, and the heavy vehicle use tax. Highway Account contributions are also used in the computation of the Minimum Guarantee. The States shares of certain apportionments specified in TEA-21 are adjusted annually to ensure that each State receives at least 90.5 percent of its percentage contributions to the Highway Account.

Given the increased importance of estimated Highway Account of the Highway Trust Fund (HTF) receipts attributable to highway users in each State as a formula factor, FHWA is again sharing its attribution methodology with the States and others. These procedures were published in a 1985 Federal Register notice and later, summarized in a Highway Information Update (Volume 1. No. 2, July 29,1996).

It is a surprise to many that the contributions to the HTF are not available from the Internal Revenue Service (IRS). The fuel taxes, which make up over 80 percent of the HTF's receipts, are imposed when the fuel is first removed from bulk storage and the tax is paid by the seller. Thus, the typical Federal fuel taxpayer is an oil company. If HTF contributions were determined using the information on the tax returns, over half of the gasoline tax receipts would be credited to just three States--Texas, New York, and Pennsylvania--where major oil companies have their headquarters. The truck tire tax receipts are concentrated in Ohio, the home of the U.S. tire industry, and the tax on truck and trailer chassis is paid by the seller. While paid initially by a company, the costs of these taxes become part of the purchase price of the products and are ultimately paid by the highway user. The heavy vehicle-use tax is the only Federal highway-user tax paid directly to the IRS by the vehicle owner, and even then, the return captures only the business address of the owner, not the State or States where the vehicle is operated.

As tax records do not yield the desired information, FHWA estimates the HTF contributions from highway users in each State. The method for attributing Trust Fund receipts to each State has changed over time. When FHWA first started making the estimates, it was in response to general interest in donor-donee issues. With the passage of the Surface Transportation Assistance Act of 1982, the attribution of HTF receipts became a factor in calculating the 85-percent minimum allocation. FHWA solicited comments from the States on its methodology and modified it to reflect the concerns of the States and the Congress that the attribution employ use-based factors. The resulting methodology, first used to attribute fiscal year 1984 Trust Fund receipts, was published in the Federal Register on June 21, 1985. These procedures, summarized below, have been in use since that time.

The Department of the Treasury reports the tax receipts deposited in the HTF for each tax type. The net receipts, after refunds and transfers, are the contributions to the HTF that are attributed to the highway users in each State. These U.S. totals are prorated among the States based on the factors shown in Table 1. The basic premise is that the Federal gasoline tax receipts to the Highway Account are received from each State in proportion to the highway use of gasoline in each State compared to the total use in all States. Simply put, if Alabama used 2 percent of all highway gasoline in the United States, then 2 percent of the Federal gasoline tax deposited in the Trust Fund is assumed to come from highway users in Alabama.

Commercial vehicle contributions -- diesel fuel tax, truck tire tax, truck and trailer retail sales tax, and the heavy vehicle use tax are attributed to the States using highway use of diesel and special fuels (Special fuels are very small amounts). This method is considered to be the best available proxy for truck use in each State. Table 2 shows an example of the calculation for a single State to further illustrate the concept.

1/ Highway use of gasoline is derived by the FHWA from reports from State fuel tax agencies. The FHWA estimates gasohol using State-supplied data, along with information from IRS, the Department of Energy, and the ethanol industry. Beginning January 1, 1993, Federal law defines three types of gasohol each with a different tax rate--10-percent gasohol (the traditional 10-percent fuel alcohol, 90-percent gasoline blend), 7.7-percent gasohol and 5.7-percent gasohol. The volumes of each are estimated and weighted based on their tax contributions to give a 10-percent equivalent volume. Highway use of diesel and special fuels is reported by the States from the records of their fuel tax agencies. The diesel and special fuels volume reflects the adjustments made to reflect use in the State rather than purchases in the State and excludes non-highway uses such as aviation gasoline, marine fuel, agriculture, industrial and commercial, and other special uses.

1/ The fuel use data used for attribution is the latest verified data available, which generally means that there is a one-year lag between the Trust Fund receipts and the fuel use data used to attribute them.
2/ The gasohol shown on first gasohol line is estimated gallonage and on second line is the total volume 10-percent equivalent of the three different types of gasohol defined in Federal law.
3/ The fuel volume shown is for diesel and special fuels.

The Office of Highway Information Management publishes a number of tables on this and related topics in its annual Highway Statistics. Included are Federal-aid apportionment formulas (table FA-4A), apportionments (Table FA-4), allocations (Table FA-4D), the attribution of Highway Trust Fund receipts (Table FE-9), the fuel volumes used in the attribution process (Table MF-27) and a comparison of attributed highway account receipts to apportionments and allocations (Table FE-221). Questions on these topics may be directed to Ralph Erickson, HPM-10, at 202-366-9235.