Local Option Transportation Taxes in the United States (Part One:

This study examines the extent to which states have devolved one of the most fundamental decisions in transportation policy—whether to use taxation powers to fund transportation improvements—to local and regional governments. The purpose of the study is to generate a baseline of knowledge on “local option transportation taxes” in all fifty states. We have examined the laws that states have used to authorize these taxes, the extent to which local areas have adopted them, and how the revenues are used and governed. This is not a study of local transportation finance in general. Local governments use a wide range of revenue sources and mechanisms that were not considered in this research, including general revenues, dedicated tax streams passed down from the state governments, and tolls. We also did not systematically examine the local issuance of bonds, except where it was associated with an identifiable local tax. What is a local option transportation tax? In the face of complex real-world taxation systems, we developed an imperfect but straightforward definition: a tax that varies within a state, with revenues controlled at the local or regional level, and earmarked for transportation-related purposes. This broad definition includes taxes regardless of how they were established, as long as they are not uniform statewide, and do not fund state programs. There is wide diversity in how local option transportation taxes are constructed, implemented, and used around the country. Typically, however, these are time-limited taxes that are approved by the voters and earmarked for a specific set of projects.