Posted by Debi G Hill, CPA

Gas Taxes: What fuels it?

Gas Taxes: What fuels it?

To pay for construction and repair of US bridges, roads, and interstate highways, gas taxes have often been considered an integrated ‘user fee’. Many states and the federal government had been reluctant in adding this problem at the pump by increasing gas taxes, ever since the cost of gasoline at the pump has increased since the 1970s. 

Since 1993, the gas tax has not been raised by the federal government. When the cost of gasoline was rising to some of its highest levels in history, no state raised gas taxes from 2010 to 2012. However, transportation infrastructure maintenance postponement has reached a crisis point. The state taxes on fuel have now raised in many states beginning with increases in 2013.  

An increase in the federal gas tax is being proposed to help pay for the major infrastructure legislation that the federal government is considering. To help fund an infrastructure bill, a willingness to consider a gas tax increase has been indicated by the White House. 

How do you think your driving getaway plan will be affected by the gas taxes? In determining the price of gas at the pump in a state, gas tax rates are not the only variable. In determining the price of gas at the pump, distribution costs may play an even bigger role than state or federal gas taxes. A variety of approaches have been taken by the states to increase the gas tax. Without further legislative action, building in provisions to make adjustments in the gas tax is one of the approaches they did. Gas stations close to state lines may have significantly higher or lower prices since the price may vary widely depending on the state and which state line they are on. For locals and residents living in a state with a large population center and adjacent to a borderline to fill up their tanks, they must drive to the adjoining state. 

  • Since the year 1993, the federal gas tax rate has been 18.4 cents per gallon. However, this rate could finally be raised under the consideration in Congress of the infrastructure legislation. 
  • Because of the increases in rates adjusted for inflation, the efficiency of a vehicle, the price of the fuel, or creating planned increases, many states abandoned the fixed gas tax rate increase over a period of time. 
  • As a sustained lower price of gasoline has resulted in several years of lower tax revenues, several states that had a tiered gas tax pricing structure must readjust their laws. 
  • States such as Alaska and Hawaii have some of the lowest gas taxes and with the highest pump prices reflect the role of the distribution costs. This situation gives pressure on legislatures to not add higher taxes to the already high cost of fuel. 
  • In the nation, the state has the highest pump prices and the highest gas taxes in California, and it is also surrounded by states that have almost similar prices.
  • From 19 cents to 38 cents a gallon this year, Illinois has enacted the largest gas tax increase so far. Several state borders significantly have lower pump prices. Illinois also has an area with major population centers not far from two other states and with major interstate highway routes, so residents are given options when filling up their tanks. 
  • State-by-state pump prices can be tracked in some websites. In some websites like Wolter Kluwer, when you compared gas taxes, states like California, Oregon, Washington, Pennsylvania, Idaho, and Illinois have both high pump prices and high gas taxes. 
  • States like Louisiana, Mississippi, Texas, South Carolina, Missouri, Virginia, and Oklahoma have the lowest pump prices along with the lowest gas taxes. 
  • Compared to the overall national estimated pump prices of summer 2018, this year’s national estimated pump prices are surprisingly lower even with additional state gas tax increases. 

Excise taxes imposed on wholesales passed along to consumers in the form of higher taxes, per-gallon excise taxes collected at the pump, and sales taxes that apply to the purchase of gasoline are three ways that the states implemented in gas taxes. When the American Petroleum Institute calculates the average tax rate on a gallon of gasoline in each state, the institute considers these different approaches. 

With the highest tax rate of 61.2 cents per gallon, California placed as the first followed by 58.7 CPG of Pennsylvania, 54.98 CPG of Illinois, and 49,4 CPG of Washington. The states that have the lowest tax rates are Alaska with 14.66 CPG, Missouri with 17.42 CPG, and Mississippi with 18.4 CPG. 

Debi G Hill, CPA
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