House Transportation committee reviews purchase-and-use tax, weighing shifts in split with education fund

The House Transportation Committee on Feb. 26, 2025 heard from Logan Mulberry, fiscal analyst at the Joint Fiscal Office, on how the state’s purchase-and-use tax funds transportation and education and what changing the current allocation would mean.

Mulberry told the committee that the purchase-and-use tax includes a 6% tax on the value of motor-vehicle purchases and a 9% tax on short-term rental vehicle charges. “The transportation fund receives two thirds of purchase-and-use revenue currently, and then the Ed Fund gets the other third,” he said. For fiscal year 2026 the JFO forecasted total purchase-and-use revenue of about $157.5 million, with roughly $105 million directed to the Transportation Fund and $52.5 million to the Education Fund.

The presentation traced the tax’s history and earlier statutory changes. Mulberry noted that a 1997 change as part of Act 60 created the Education Fund and that a later reallocation around 2004–2005 moved to the current one-third/two-thirds split and removed the Ed Fund’s share of gas-tax revenue. Mulberry showed a hypothetical that, the office said, indicates the Transportation Fund is receiving about $14.9 million less in FY26 than it would have if the pre-2005 allocation had remained; the office also reported a cumulative difference on the order of $138.3 million over recent years, an average of about $6.3 million per year, in the scenario used for the analysis.

Mulberry offered four illustrative policy options for the committee to consider if it wanted to change the current allocation: revert to the pre-2005 allocation (shifting a portion of the gas tax back to education and adjusting purchase-and-use accordingly); eliminate the Education Fund’s share of purchase-and-use entirely; reduce the Education Fund share incrementally; or cap the Education Fund’s annual receipt (for example, one-third up to a fixed dollar amount, with any excess remaining in the Transportation Fund). He repeatedly framed these as options rather than recommendations.

Legislators raised trade-offs. Representative Pannister noted the tax is “adjusted for inflation” because vehicle prices rise, calling that feature a reason the tax can be a durable revenue source. Representative Burke asked whether committee staff had discussed the matter with the Education Committee and Ways and Means; Mulberry and other members said JFO and agency staff have met with those offices and legislative liaisons but that broader intercommittee conversations were ongoing.

Several members warned that reducing the Transportation Fund’s share could increase pressure on property taxes or reduce federal matching opportunities. Representative Hubert summarized that “every dollar that is moved to the Education Fund from the T Fund is more than just a dollar,” referencing potential leverage from matching funds. Representative Chuck and Representative Powell said the committee should consider the risk of losing federal grants that require state matching if transportation matching capacity declines.

Mulberry and members requested additional data for later meetings: longer trend lines of purchase-and-use receipts (including calendar-month detail around recent DMV fee changes) and clearer estimates of how proposed allocation changes would affect both funds and downstream effects on property tax or federal matches. Mulberry said the JFO and agencies could model specific policy proposals if the committee reaches a point of choosing one of the illustrative options.

The committee did not vote on any change. Members directed staff to return with more detailed trend charts and scenario modeling before taking legislative action.