On June 27 The California State Board of Equalization (BOE) announces that the state excise tax on gasoline will drop by 2.2 cents per gallon on July 1, 2016. This will lower the excise tax rate from 30 cents to 27.8 cents per gallon for the 2016-17 fiscal year, effective July 1, 2016, through June 30, 2017.

“California requires the BOE to adopt a revenue-neutral excise tax rate for each fiscal year, and when the selling price of gasoline falls, we are legally obligated to reduce the excise tax accordingly,” said Chairwoman Ma. “This is a mathematical formality and not a policy matter within the discretion of the Board.”

The Board approved the 2.2-cent tax rate reduction at its February 2016 meeting. The Board has been required to adjust the excise tax rate on gasoline since 2010, when two pieces of legislation (AB x8 6 and SB 70, the budget trailer bills collectively known as the fuel tax swap) took effect. The Board sets the rate annually so that over a three-year period, the amount of revenue collected under the fuel tax swap is the same as what would have been collected under the prior gasoline tax structure. The excise tax on gasoline goes to the State Transportation Fund for the construction and maintenance of public roads and mass transit.

Although Californians will pay less in state excise tax on gasoline starting July 1st, this does not generally translate to lower overall prices at the pump, which are determined by a number of global factors. According to the United States Energy Information Administration, gasoline prices are driven by crude oil prices, refining costs, and distribution and marketing costs. Crude oil prices—which are affected by worldwide economic growth, regional economies, supply and demand—are the largest component of United States gasoline prices, as explained in the latest issue of BOE’s Economic Perspective.

The latest issue also highlights the strong relationship between U.S. gas prices and California gas prices, and California’s gas price is one of the biggest components in setting the excise tax rate annually. U.S. gas prices have declined 37 percent from June 2014 to May 2016, and California’s gasoline excise tax rate has decreased every year since fiscal year 2013-14. Gasoline purchases in California also have increased, with the latest data showing that gasoline consumption for the fourth quarter of 2015 was the highest since 2007.