Fuel Sales Tax

Some states have pondered a tax per gallon of gas pumped, but that plan has recently been abandoned for a tax on each sale of gasoline. For instance, in 2013 Virginia repealed its 17.5 cents per gallon of gas tax, replacing it with a 3.5 percent tax on gasoline sales. One potential disadvantage to this proposal is the fickle prices of gasoline. The recent plummeting of gas prices could lead to a drop in revenue from a wholesale tax proposal. 

MSU economics professor Dr. Ken Boyer does not see a fuel sales tax as a viable option in the long run.

"Fuel taxes are not a long-term solution to road funding because cars are getting more fuel efficient and are being replaced with vehicles that use no fuel—thus avoiding road usage fees," Boyer said. "Higher fuel taxes are clearly called for in the short run, followed by a movement to EZ-pass types of collection systems for mileage-based fees."

Retail Sales Tax

There are some states that have initiated highway projects funding via a raised sales tax. Because a raised sales tax is broad and affects the entire state, it has the potential to generate a boat load of money. In 2012, Arkansas voters approved a half cent raise in sales tax for roads. Michigan voters will decide in May whether or not to approve a similar 1 cent sales tax. 

Boyer is not a supporter of a retail sales tax to fund roads. He said there is nothing that backs invoking an increased sales tax.

Boyer said, "There is nothing to recommend a sales tax as a replacement for fuel taxes since they distort decisions on where and when and how much to drive—making drivers think, for example, that there is no cost to the public by using a road."

Mileage Taxes

The most common alternative to fuel taxes, a tax per mile traveled has yet to be widely implemented. Some are reluctant to volunteer their vehicle for GPS tracking services. Oregon has plans for a mileage tax program this July. The state plans to take 5,000 volunteers and tax them per mile traveled and will refund their fuel taxes. 

According to Boyer, mileage taxes are similar to a toll, and this is the method he said is the best option for funding Michigan road repairs.

"A mileage tax is the same as a toll. This is my preferred solution since it sends correct signals to drivers on the cost of their decisions," Boyer said. "For example, if roads are paid for with a tax on buying groceries or clothing rather than the cost of driving, driving becomes under-priced, thus causing people to make inefficient decisions on where to live and work and what mode of transportation to use to get to work or shopping."

Private Funds

There are some states that have used private investments to fund road renovations. In some cases, private entities invest their own money and are promised any profits that come from the roads, or are subsidized by the government. This hurts the public, according to Boyer.

"(Private) funds tend to be more expensive than public funds. The key issue is what sort of guarantees are given to the private investor to make sure that they can make a profit," Boyer said. "The promises are often of the form that a private investor keeps profits if they appear, but gets subsidized if profits are not made. So the private investor tends to win at the expense of the public."