Extras on Excise: Drivers Ringing in the New Year with More Cha-Ching at the Pump


Some travelers driving back home this week probably noticed that their return journey cost them more in gas than the first leg of their trip.  The extra expense in escaping the in-laws after the holidays may be due in part to gas tax hikes in several states, including Michigan, Pennsylvania and Nebraska, that became effective Jan. 1.

Michigan’s fuel tax rates are now $0.263 per gallon for both gasoline and diesel. Before 2017, the rates were $0.19 for gas and $0.15 for diesel. The new rate also applies to alternative fuels, such as liquefied natural gas or compressed natural gas, which are now subject to the tax (previously only liquefied petroleum gas and biodiesel were taxable).

Nebraska had a $0.015 increase, from $0.258 per gallon to $0.273 per gallon. The state’s gas tax is composed of three elements: wholesale tax, variable tax and fixed tax. While the wholesale tax went down from $0.115 to $0.105, the variable tax rose from $0.025 to $0.035. The fixed tax increased from $0.118 to $0.133.

In Pennsylvania, the 2017 oil company franchise (gas) tax rates are $0.582 for gasoline and $0.747 for diesel and other fuels. This represents a $0.079 increase for gas from $0.503 and a $0.107 jump from $0.64 for diesel.

Pennsylvania’s increase isn’t anything new. The state has seen gas tax increases over the past few years, due to legislation enacted in 2013 that eliminated the gas tax cap and provided a formula to calculate tax based on the average wholesale price of fuel. Both Michigan’s and Nebraska’s increases came from bills that passed in 2015.

These states follow New Jersey, which jumped from $0.145 per gallon to $0.375 for gasoline in November (the state’s diesel’s tax rate also went up on Jan. 1 from $0.135 per gallon to $0.294).

Excise taxes are usually collected at the manufacturer/wholesaler/producer level, with the costs getting passed on to the consumer when they fill up their vehicles at the pump. One Lansing, Mich., news outlet has reported that pump prices have already risen across that region.

Other states with new gas tax increases are Georgia, Florida, Indiana and North Carolina. However, these changes are less dramatic, as they are all under $0.01.

There are other states with fuel tax increases in the pipeline, so to speak. Alaska Gov. Bill Walker’s (I) state budget proposal recommends increasing the fuels tax from $0.08 per gallon over the next two fiscal years: up to $0.16 in fiscal year 2018 and then increasing to $0.24 in fiscal year 2019, as originally reported by Bloomberg BNA’s Steve Quinn (subscription required). Tennessee state representative John Ray Clemmons (D) is planning to propose legislation increasing the gas tax up roughly $0.10 from $0.214 per gallon and $0.2395 from $0.184 for diesel, according to the Nashville Post.

The common theme in is these discussions is budget gaps, as many of these states have experienced revenue shortfalls. One drastic example is Alaska, which is largely dependent on oil and gas tax revenue; lower gas prices and production has meant significantly fewer tax dollars for the state, which is experiencing a budget gap of over $3 billion. It’s to be determined whether these mitigation efforts will make some drivers’ wallets hurt too.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Is increasing fuel taxes an effective way to mitigate state budget woes?

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