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Petroleum Taxes

Reference Number: MTAS-137
Tennessee Code Annotated
Reviewed Date: July 18, 2016
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Gas Tax
Public Acts 1997, Chapter 316, effective January 1, 1998, repealed entirely the previous laws governing petroleum taxes (the "gas tax") and replaced it with the Petroleum and Alternative Fuels Tax Law, codified at T.C.A. §§ 67-3-1201, et seq. The Petroleum and Alternative Fuel Tax statutes subsequently were transferred to T.C.A. §§ 67-3-101, et seq. That law imposes a state tax on various petroleum products sold in Tennessee. Most of the proceeds from this tax go into the state highway fund, state sinking fund, state general fund, and other state funds or programs, but the law also provides that counties and municipalities receive a share of the tax. However, tax rates and formulas for the distribution of those taxes, including the shares for counties and municipalities, cannot be determined solely from the face of the law. Those rates and formulas require extensive reference to the previous laws governing petroleum taxes and to the public acts upon which they were based, particularly Public Acts 1985, Chapters 419 and 454; Public Acts 1986, Chapter 931; and Public Acts 1989, Chapter 46.

Counties and municipalities share in the proceeds of petroleum taxes. In general, counties receive about 30 percent of the proceeds and municipalities about 15 percent. The state retains roughly 55 percent of the proceeds.

Except where specifically indicated otherwise:

  • Fifty percent of the counties’ shares are divided equally among the 95 counties, 25 percent on the basis of area and 25 percent on the basis of population;
  • Municipalities’ shares are divided based on the population each municipality bears to the aggregate population of all municipalities, according to the federal census or a special census as prescribed by T.C.A. § 54-4-203. T.C.A. § 67-3-901(b), (c), (f)(2) and (i); T.C.A. § 67-3-905; T.C.A. § 67-3-1108; T.C.A. § 54-4-103; and T.C.A. § 54-4-204; Op. Tenn. Atty. Gen. No. 86-136; and
  • The money each individual municipality receives under the Petroleum and Alternative Fuels Tax Law is paid into the municipality’s state street aid fund and is required to be administered and spent under the law that governs that fund. T.C.A. § 54-4-103, T.C.A. § 54-4-204.

Special Privilege Tax; Export Tax
T.C.A. § 67-3-203 levies a special privilege tax of 1 cent per gallon on all petroleum products, and T.C.A. §67-3-205 levies an export tax of one-twentieth of 1 cent per gallon on certain petroleum products exported from Tennessee. Ninety-eight percent of the proceeds from these taxes are paid into the state highway fund, and 2 percent is paid into the state general fund for administrative purposes. From the actual proceeds of those taxes, there is established a local government fund of $12,017,000. "The local government fund shall be used solely for county roads and city streets." Counties receive from this fund the monthly sum of $381,583 based on county population; municipalities receive from the fund a monthly sum of $619,833, based on municipal population. [1] T.C.A. § 67-3-2006.

Local Option Gasoline Tax for Public Transportation
T.C.A. §§ 67-3-1001, et seq., authorize municipalities and counties to levy a local gasoline tax of 1 cent per gallon to fund public transportation systems, but no local government has used this authority.

[1] $10,000 per month is deducted from the municipalities’ share to help support The University of Tennessee training program, which is now housed at MTAS.