The state Legislature quietly let expire a tax exemption on the sale of gasoline in Hawaii, meaning that drivers will pay an extra $40 million a year in state taxes starting July 1.

With the average price of a gallon of gas today costing $2.553 after fuel taxes are added, it will mean that on July 1 the gas will cost 9.6 cents more per gallon.

That would push the price of gas on Maui to more than $3 a gallon.

The excise tax is added to the retail price of gasoline before all the other taxes are included. Hawaii motorists already pay a per-gallon federal tax of 18.4 cents, a state tax of 17 cents and county fuel taxes of between 16.5 cents in Honolulu and 8.8 cents on the Big Island.

The other taxes, however, are a set price. The excise tax is a percentage, so if the price of gasoline goes up this summer, a motorist's excise tax will also jump.

Since 1980 the state has exempted the sale of ethanol-blended gasoline from the general excise tax to encourage use of the so-called gasohol. After the state made the use of blended gasoline mandatory, the exemption essentially applied to all gas sold in the state.

But the exemption was set to expire at the end of this fiscal year unless extended by the Legislature.

The state Senate passed a bill to do that, Senate Bill 32, but it was killed in the House.

The Senate again slipped the permanent exemption into another bill, House Bill 1271, which creates a separate new barrel tax on petroleum used in Hawaii. But the excise tax exemption was deleted without comment in the conference committee version of the bill.

Linda Smith, Gov. Linda Lingle's senior policy adviser, said yesterday that without the exemption state excise taxes must be paid on all gas sold in the state.

In 2007 the exemption expired even after Gov. Linda Lingle urged the Legislature to keep the exemption in place. When legislators saw the rising prices of gasoline in 2007, they reinstated the exemption but set it to expire at the end of this fiscal year.

This year the state Tax Department opposed making the exemption permanent, noting that it would add $40 million to the state treasury.

State Rep. Mina Morita, chairwoman of the House Energy and Environmental Protection Committee, opposed the gas exemption because she said it was being wrongly applied.

The exemption, Morita said, originally was intended to give gas station operators a tax break because they had to put in new equipment to store and pump ethanol-blended gasoline. Now that the switch has taken place, the excise tax should continue, Morita said.

The state also needed the money, and there was no assurance the tax break was being passed along to drivers.

“;The exemption was never factored into the budget,”; Morita (D, Hanalei-Kapaa) said, noting that the $40 million is cranked into the budget.

She added that it was never clear whether the excise tax exemption resulted in lower fuel prices, because “;gasoline pricing isn't transparent; it was being sold as a way to lessen the cost of gasoline for consumers. But that may not be true.”;