Studies of state Road Fund tax structures, like studies of state General Funds, tend to focus on a state’s current tax structure compared to surrounding states and identifying possible tax changes that may make a tax system simpler, more equitable, more administratively efficient, more competitive or more “adequate.” In conducting such analysis, the inherent trade-offs among these accepted tax principles becomes apparent. Efforts to increase competitiveness may impact the adequacy of a tax system. Likewise, tax legislation intended to enhance tax administration efficiency may impact the equity of a state’s Road Fund tax structure. Such trade-offs associated with conflicting tax change or modernization goals has limited tax system changes or reforms.

The current study has two goals including: 1) an analysis of Road Fund tax changes that have been enacted by the 50 states during the past decade, and 2) an analysis of Kentucky’s current Road Fund tax structure and tax collection system including the various multi-state tax collaborative efforts relied upon to insure the collection of taxes due the Commonwealth. The first objective focuses on reviewing Road Fund tax changes across the nation that may have implications for future Road Fund tax policy in Kentucky. The analysis of tax changes is based on information obtained from the National Conference of State Legislators (NCSL). It also benefited from a survey of Chief Financial Officers of State Transportation Departments regarding the goals of the enacted changes.

Road Fund tax collection processes are complicated due to the fact that commercial carriers routinely operate across state boundaries and “share” tax bases including taxes on fuels consumed and registration fees for commercial carriers among other common tax sources. As a result, coordinated assessment and collection efforts are necessary for the states to determine each state’s fair share of the tax revenue generated by the transportation industry. These collaborative efforts are reviewed in this study.

As indicated, this study provides comparisons of Kentucky’s Road Fund tax structure to surrounding states. Such comparisons indicate tax structural differences that may lead to competitive disadvantages (or advantages) for Kentucky businesses and corporations. In addition, the study attempts to identify fairness, simplicity, efficiency and adequacy issues associated with Kentucky’s Road Fund tax structure. Provisions of Kentucky’s Road Fund tax code that impair Kentucky’s pursuit of a tax structure consistent with these tax principles may be candidates for change in the future.

Overall, this study was designed to provide policy makers and tax policy analysts with a comprehensive “primer” on Kentucky’s current Road Fund tax structure and emerging tax issues. As such, it is intended to provide a starting point for future discussions of ways and means to insure the future adequacy of Kentucky’s Road Fund while not diminishing the Road Fund tax structure’s “compliance” with the other tax policy principles.

In the preparation of this study, the authors benefited from the support and assistance of several individuals from the Kentucky Revenue and Transportation Cabinets and the Governors Office of Economic Analysis. We specifically recognize the assistance of Debra Gabbard, Jim Roberts, J.W. Bryan, Romine Russell, Taylor Manley, Willie Payton, Steve Coffey, Tim Adams and Willie McCann of the Transportation Cabinet, Eddie Mattingly, Wyatt Gregory, Michael Grammer, Jim Oliver, and Eddie Mattingly of the Revenue Cabinet who served on special committees established to provide study assistance. Also, the support of Martha Armstrong, Bob Cox and Gene Brown of the Governors Office of Economic Analysis in editing and producing the final report is sincerely appreciated.

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The contents of this report reflect the views of the authors, who are responsible for the facts and accuracy of the data presented herein. The contents do not necessarily reflect the official views or policies of the University of Kentucky, the Kentucky Transportation Cabinet, nor the Federal Highway Administration. This report does not constitute a standard, specification, or regulation. The inclusion of manufacturer names and trade names are for identification purposes only and are not to be considered as endorsements.