Transportation Funding
North Carolina’s transportation funding is a complex landscape of state and federal revenues.
North Carolina knows that maintaining our existing infrastructure is critical to our jobs, economy, and daily life. For this reason, 56% of all transportation expenditures go to our maintenance and operations as part of the state’s Highway Fund. We also know that we must build a next-generation transportation network, so 44% of all funding is spent on capital projects as part of the state’s Highway Trust Fund. The capital projects include highway and bridge projects, pedestrian and bicycle accommodations, airport and rail improvement projects, ferry, transit, and rail facilities and equipment.
About 80% of funding comes from four North Carolina revenue sources: the State Motor Fuel (gas and diesel) Tax, the Highway Use Tax, DMV Fees, and Sales Tax. The federal government provides the remaining 20% through the federal motor fuel tax and vehicle fees.
North Carolina’s transportation network is funded by 4 key state revenue sources which make up 80% of the overall state transportation funds:
State Motor Fuel Tax
Often called the gas tax, consumers pay a motor fuel tax at the gas pump based on the amount of fuel they purchase. The 2024 state gas tax is 40.4 cents per gallon. The North Carolina General Assembly updates this rate each year to reflect changes in the state’s population and energy costs. This allows revenues to grow with the state and economy.
North Carolina relies heavily on the state gas tax – making up around half of the state’s transportation funding. Adjusting the gas tax rates provides short term relief, but as vehicle fuel efficiency continues to improve, drivers will need less gas – and pay less gas tax. That means less and less gas tax revenue over time and less funding for our transportation network.
Highway Use Tax
The Highway Use Tax (HUT) is a one-time tax charged when a vehicle title changes hands in North Carolina. It is the second largest source of state funding for transportation at 22%. This 3% tax applies to the purchase price of new or used vehicles. If you trade in a vehicle when you buy a new one, the trade-in value is subtracted from the purchase value to determine your HUT amount.
Additional HUT taxes include:
A 3% tax on long-term vehicle leases
An 8% tax on short-term vehicle rentals and car-sharing services
A 5% tax on vehicle subscription services
North Carolina’s HUT rate is one of the lowest in the country and has not changed since 1989.
DMV Fees
North Carolina collects multiple N.C. Division of Motor Vehicles fees, which are set by the state legislature, including:
Driver license fees
Vehicle titling fees
Annual registration and inspection fees (Electric vehicle and plug-in hybrid owners pay an additional annual registration fee).
Customers may also pay an additional charge for ride-hailing services based on the number of riders. Most fees adjust for inflation every four years per state law.
DMV fees provide 23% of North Carolina’s state funding for transportation.
Sales Tax
North Carolina collects a 4.75% state sales tax on goods and services. A portion of the state sales tax collections (4%) supports transportation. This portion will increase to 6% in fiscal year 2024-2025.
Purchases related to transportation also pay the state sales tax, like new windshield wipers or oil changes. Delivery services also pay sales tax as these vehicles may affect the conditions of the road.
Sales taxes, which are dedicated from the state’s General Fund account, provide approximately 12% of North Carolina’s state funding for transportation.
North Carolina also receives funds from the federal government through the federal motor fuel tax and vehicle fees which provide 20% of the state’s transportation funding.
The Federal Highway Trust Fund, which supports highways and public transportation, is funded by federal gas taxes and other user fees, like commercial vehicle fees. Since 2018, the money brought in has not been enough to fully pay for the surface transportation program. Like the state gas tax, improved fuel economy and the increased use of alternative fuel vehicles have reduced the amount of money coming into the Federal Highway Trust Fund.
Instead of increasing the federal gas tax, which hasn’t changed since 1993, Congress used over $275 billion from other tax sources to fund the nation’s transportation infrastructure. According to the Congressional Budget Office, the next five-year transportation funding bill would need an added $200 billion from another funding source to maintain operations as they are today. As other federal programs face funding shortfalls and national defense spending grows, additional general fund transfers are not realistic and would increase the national debt.