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An Insight Into The Federal Gas Tax

An Insight Into The Federal Gas Tax

Every time you top your vehicle off at the gas station, there are state and federal gas taxes you are paying for every gallon of fuel you buy. 

The federal tax on gasoline is set at 18.4% for each gallon, which is specified to help the government provide amenities and infrastructures like roads, bridges, etc. In the state that the fuel is sold, there could be state taxes added as well. 

The last time there was an increase in the gas tax at the federal level was in 1993. This article sheds light on the federal gas tax and a projection of whether there might be an increase or not. 

Explaining the federal Gas Tax 

The gasoline tax is one of the forms of excise tax- a tax added to the cost of some designated goods and services. There is a charge of 18.4 cents and 24.4 cents for every gallon of gasoline and diesel, respectively. 

Besides, there are also gas taxes based on location. Each state has its gas taxes, while the municipal and local government could add theirs as well. 

The original intention for introducing the federal gas tax in 1932 was for the balance of the national budget. It evolved into a user fee intended to pay for the maintenance of bridges and roads of the country. This tax commenced as a 1 cent tax without much increase over the years. The few increases in the federal gas tax have been due to inflation.

What are the costs included in a gallon of gasoline?

The cost to be paid at the pump varies, which is a factor of many things. In 2018, however, the average cost of gasoline was $2.72 across the US. Based on information from the Administration for US energy, here is a breakdown of the costs involved in a gallon of gasoline. 

  • Marketing and distribution: $0.36

  • Profits with refining costs: $0.36

  • State and Federal tax: $0.47

  • Crude oil: $1.53

What is the essence of the gas tax?

Ideally, all drivers should have a direct benefit from the gas taxes paid. The tax revenue from federal gas is directed to the Highway Trust Fund. This trust was set aside for the funding of state and federal infrastructures such as bridges, public transport systems, roads, etc. 

The state gas taxes are directed to the states' trust, and each state determines how they will use it. 

State Gas taxes

There are gas taxes from every state. As of 2018, fuel buyers pay 28.62 cents on average for state taxes on every gallon of gasoline alongside the federal tax giving 47.02 cents for every gallon purchased.

While one might not be aware of the taxes on gas products, the taxes increase with time. With this, buying a 20 gallon of gas implies an average of $9.40 in tax.

Will there be an increase in the federal gas tax?

In short, there might!

The last increase of the federal gas tax was in August 1993, with the average cost of a gallon of gasoline set at $1.06. 

Even though the last 25 years have seen no changes in the gasoline tax, there has been a tremendous increase in the cost of construction and maintenance of infrastructure. Local and state officials have projected the cost of infrastructure that the country needs to be $2 trillion. 

Even though in 2018, the Highway Trust Fund was able to raise as much as $41 billion, it was not enough to take care of projects over the years. As a result, Congress had to divert money from other sources to cover the need. By 2021, if there is no reasonable step taken to patch this, it is projected that the HTF might become insolvent as projected by the Congress Budget Office. 

One of the contributions to this shortfall is fuel efficiency that has increased steadily over the years. 

Also, the use of electric and hybrid cars brought down the revenue from gasoline taxes since these vehicles use little to no gasoline. In response to this, a couple of states have started levying a unique registration fee for some select vehicles to make up for the loss of the revenue on the gas tax.



Tiffany Gaskin
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