What is Ability to Pay Principle

Fuel taxes have historically been the key revenue source for a great deal of transportation infrastructure, especially roads. For many reasons, such as reduced fuel tax receipts, governments at all levels have begun to explore additional financing options. This chapter explores an option that local governments have available to them in many states: local sales taxes earmarked for transportation projects. This chapter briefly discusses the literature on local sales taxes, the diversity of the laws regarding local sales taxes earmarked for transportation, potential consequences of increased reliance on local sales taxes earmarked for transportation, and briefly discusses a similar revenue source—the local fuel tax. This research is important to understanding the changing patterns of how public transportation is being financed in many states, and if the spread of non-earmarked local sales taxes are any indicator, how it is likely to be financed in many others moving forward.