Reduced Highway Taxes for Alternative Fuels

Summary

Hawaii's state legislature declared that "there is a need to remove unnecessary disincentives to the use of alternative fuels, by adjusting transportation fuel tax rates to reflect energy content of alternative fuels, and to provide an incentive to the use of these fuels by providing reduced tax rates for several years." Act 143 (HB1345, Relating to Energy Content of Fuels) was signed on May 24, 2001. It encourages the use of alternative fuels by adjusting the fuel tax to reflect the energy content of alternative fuels and reducing the fuel tax rate of alternative fuels for several years. The legislature defined "alternative fuels" as "methanol, denatured ethanol, and other alcohols; mixtures containing eighty-five per cent or more by volume of methanol, denatured ethanol, and other alcohols with gasoline or other fuels; natural gas; liquefied petroleum gas; hydrogen; coal-derived liquid fuels; biodiesel; mixtures containing twenty per cent or more by volume of biodiesel with diesel or other fuels; fuels (other than alcohol) derived from biological materials; and any other fuel that is substantially not a petroleum product and that the governor determines would yield substantial energy security benefits or substantial environmental benefits." Prior to Act 143, most alternative fuels were taxed at a higher effective rate than conventional fuels such as gasoline or diesel. Highway fuel taxes were assessed at the same rate per gallon of fuel, regardless of the energy content of the fuel. Because alternative fuels have less energy per gallon, the effective tax rates were higher for alternative fuels. Call the Hawaii Department of Taxation for more information.