Transportation Funding

North Carolina’s transportation network is funded by four key state sources of revenue:

State Motor Fuel Tax

Highway Use Tax

North Carolina also receives funds from the federal government through the federal motor fuel tax and vehicle fees.

Sales Tax

Vehicle and Registration fees

However, these funding sources fall short of the national transportation need. To make up that gap, Congress has to dip into other tax sources to ensure the U.S. Department of Transportation can pay for its programs.

  • Often called the gas tax, consumers pay a motor fuels tax at the gas pump based on the amount of fuel they purchase. The 2024 state gas tax rate is 40.5 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 keep up with changes in 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.

  • The Highway Use Tax (HUT) is a one-time tax that is charged when a vehicle title changes hands in North Carolina. 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.

  • North Carolina collects multiple DMV fees. These fees include:

    • Driver license fees

    • Vehicle titling fees

    • Annual registration and inspection fees

    Electric vehicle and plug-in hybrid owners pay an added 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 4 years.

  • North Carolina collects a 4.75% state sales tax on goods and services. A portion of the state sales tax (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.

  • 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 Research Office, the next five-year transportation funding bill would need an added $200 million 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.