Gas Taxes and What You Need to Know

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Gas Taxes and What You Need to Know

Gas taxes are excise taxes paid when you fill up your automobile with gasoline. The federal government and all 50 states levy gas taxes, with a large portion of the cash earned going toward highway repairs and other infrastructure projects.

State gas taxes vary from little less than 9 cents per gallon in Alaska to approximately 65 cents per gallon in California, with some jurisdictions charging depending on the amount spent rather than the volume of gasoline consumed.

Key Takeaways

  • Gas taxes are levied by the federal and state governments to help fund road maintenance projects.
  • The average state gas tax is about 31 cents per gallon, with rates ranging from less than 9 cents to approximately 59 cents.
  • Gas taxes have not kept pace with road maintenance expenditures, prompting several governments to enact inflation-linked hikes and many others to adopt variable rates.

How Have State Gas Taxes Evolved?

History of Gas Taxes

Since the early days of car travel, states in the United States have charged gas taxes. A little more than a decade after Henry Ford’s Model T made vehicle ownership accessible to the people, Oregon became the first state to enact a gas tax—at one penny per gallon. Within ten years, every state had implemented a gas tax. In 1932, the federal government followed suit, instituting a countrywide gas tax of one cent per gallon in an effort to reduce a growing budget deficit caused by the Great Depression.

The benefits received rule is the core idea behind the tax: individuals should be charged depending on how much they benefit from government expenditure. As a result, drivers pay a gas tax to assist cover the costs of developing and maintaining highways, bridges, and tunnels, as well as to solve traffic congestion and pollution issues.

Current Problems

Unfortunately, the money generated by gas taxes has not kept pace with increased infrastructure expenses and inflation. The introduction of electric cars, as well as better fuel economy in all automobiles, has lowered gas consumption compared to vehicle miles driven, increasing the gap between gas tax revenues and road maintenance expenditures.

While the federal gas tax has been unchanged since 1993 at 18.4 cents per gallon, the rising strain on transportation budgets has prompted several states to hike the gas tax in recent years. Since 2010, thirty-six states have done so.

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In order to stay up with growing gas costs and inflation, more states are modifying the way their motor fuel excise taxes function. Almost half of states now have variable-rate gas taxes, with formulae based on anything from gas prices and the Consumer Price Index (CPI) to fuel economy and population growth. For example, Indiana bases its gas tax on inflation and personal income growth.

Most states levy additional taxes and fees in addition to the gas tax, such as environmental, subterranean storage, and inspection costs. Other forms of fuel, such as diesel, ethanol, aviation fuel, and alternatives such as natural gas, are also taxed.

2022 Gasoline Tax Holidays

Following the steep spike in gasoline prices following Russia’s invasion of Ukraine, four U.S. states—Connecticut, Georgia, New York, Florida, and Maryland—have postponed their state gas taxes until 2022.

Connecticut’s gas tax was suspended from April 1 until November 30. Georgia halted its gas tax on March 18, and it has now been extended till September 12. From June 1 through December 31, New York halted its automotive gasoline taxes. Maryland postponed its gas tax from March 18 to April 16; nonetheless, motorists in that state faced a 6.6 cent per gallon hike beginning July 1 as a consequence of legislation linking the tax to the national inflation rate.

Other states, including New Jersey, Ohio, and West Virginia have considered a gas tax holiday without adopting one as of June 2022.

In California, the legislature had not acted as of June on Governor Gavin Newsom’s proposal to provide $400 debit cards to auto owners to ease the effect of higher gas prices. Meanwhile, the state’s gas tax, the nation’s highest, was scheduled to increase by 2.8 cents per gallon on July 1 under a schedule of incremental increases adopted in 2017.

In calling on Congress to suspend the federal gas tax for three months through September 2022, U.S. President Joseph Biden urged states and local jurisdictions to provide relief on gas taxes as well. Economists critical of the strategy have argued that lowering gas taxes even temporarily increases the demand for a commodity, raising its market price assuming steady supply.

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How Much Are State Gas Taxes?

When you add up all the taxes and fees, the average state gas tax stood at 31.02 cents per gallon on Jan. 1, 2022, according to the U.S. Energy Information Administration. Throw in the 18.4 cent federal tax, and the total gas tax rises to nearly 50 cents per gallon.

As of August 6, 2022, gas taxes accounted for little under 10% of the average retail gasoline price of $4.084 per gallon of normal unleaded.

As of the beginning of 2022, this is a breakdown of each state’s gas taxes, including various taxes and fees:

Gas Taxes by State and the District of Columbia
StateGas TaxOther Taxes and Fees*Total Taxes
Alabama28 cents1.2 cents29.2 cents
Alaska8 cents0.95 cents8.95 cents
Arizona18 cents1 cent19 cents
Arkansas24.5 cents0.3 cents24.8 cents
California53.9 cents11.2 cents65.1 cents
Colorado22 cents1.25 cents23.25 cents
Connecticut25 cents25 cents
Delaware23 cents23 cents
D.C.23.5 cents10.3 cents33.8 cents
Florida4 cents31.5 cents35.5 cents
Georgia29.1 cents0.75 cents29.85 cents
Hawaii16 cents2.5 cents18.5 cents
Idaho32 cents1 cent33 cents
Illinois39.2 cents24.1 cents63.3 cents
Indiana33 cents30.1 cents63.1 cents
Iowa30 cents30 cents
Kansas24 cents1.03 cents25.03 cents
Kentucky24.6 cents1.4 cents26 cents
Louisiana20 cents0.93 cents20.93 cents
Maine30 cents1.4 cents31.4 cents
Maryland28.9 cents13.9 cents42.89 cents
Massachusetts24 cents2.98 cents26.98 cents
Michigan27.2 cents24.5 cents51.7 cents
Minnesota28.5 cents0.1 cents28.6 cents
Mississippi18 cents0.4 cents18.4 cents
Missouri22 cents0.42 cents22.42 cents
Montana33 cents0.75 cents33.75 cents
Nebraska24.8 cents0.9 cents25.7 cents
Nevada23 cents0.81 cents23.81 cents
New Hampshire22.2 cents1.63 cents23.83 cents
New Jersey10.5 cents31.95 cents42.45 cents
New Mexico17 cents1.88 cents18.88 cents
New York8 cents17.68 cents17.68 cents
North Carolina38.5 cents0.25 cents38.75 cents
North Dakota23 cents0.03 cents23.03 cents
Ohio38.5 cents38.5 cents
Oklahoma19 cents1 cent20 cents
Oregon38 cents38 cents
Pennsylvania57.6 cents1.1 cents58.7 cents
Rhode Island34 cents1.12 cents35.12 cents
South Carolina28 cents0.75 cents28.75 cents
South Dakota28 cents2 cents30 cents
Tennessee26 cents1.4 cents27.4 cents
Texas20 cents20 cents
Utah31.9 cents0.65 cents32.55 cents
Vermont12.1 cents24.86 cents36.96 cents
Virginia28 cents8.8 cents36.8 cents
Washington49.4 cents2.98 cents52.38 cents
West Virginia20.5 cents15.2 cents35.7 cents
Wisconsin30.9 cents2 cents32.9 cents
Wyoming23 cents1 cent24 cents

Source: U.S. Energy Information Administration

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What Do Gas Taxes Cover?

The majority of gas tax income is used to repair the wear and tear on the country’s roads caused by all that driving. In reality, over half of the states have legislation mandating that gasoline tax revenue be used to fund roads and bridges. The income is spent on different means of transportation in the majority of the other states, with New York spending more than a third of its gas tax profits on public transit.

Some states do utilize the funds for non-transportation objectives such as law enforcement, environmental preservation, and education. Texas, for example, dedicates a fifth of its gas tax money to education.

Currently, practically all federal money flows into the Highway Trust Fund. A tenth of a penny in federal taxes from each gallon of gasoline is used to fix up leaks from underground petroleum storage tanks. 2.86 cents per gallon of the 18.3 cents per gallon levy for gas tax earnings given to the roads fund pays public transportation.

However, local and federal gas taxes are progressively falling short of what is required to maintain and extend the country’s highways. The Congressional Budget Office anticipated a $195 billion gap in Federal Roadway Fund highway and public transportation investment through 2031 in 2021.

Frequently Asked Questions

How Much Is Gas Taxed in America?

The average state gas tax in the United States in January 2022 was 31.02 cents, while the federal gas tax rate was 18.4 cents. Taken as a whole, this comes to 49.42 cents a gallon.

What U.S. State Has the Highest Gas Tax?

California has the highest gas tax in the US as of June 2022, at 58.8 cents per gallon. Pennsylvania is close following, at a pricing of 58.7 cents per gallon. The California gas tax was set to rise by 2.8 cents per gallon on July 1, 2022.

What U.S. State Has the Lowest Gas Tax?

Alaska has the lowest state gas tax by a large margin, at 8.95 cents per gallon. The gas tax in the oil-producing state has not changed since 1970, when it was 8 cents per gallon.

Where Does Gas Tax Revenue Go?

The majority of gas tax money is used to fund infrastructure initiatives such as road construction, maintenance, and modernization.

Which States Tie Gas Taxes to the CPI?

A few states base their state gas tax on changes in the Consumer Price Index (CPI).Florida, Maryland, North Carolina, and Rhode Island are among them.

The Bottom Line

Given the mounting gaps, federal and state authorities will need to examine how to continue paying for paving and repairing the country’s roads. The cumulative financial gap in the Highway Trust Fund at the federal level is estimated to reach $195 billion by 2031. And that’s if Congress keeps extending the gas tax, which is set to expire in September 2022 except for 4.3 cents.

While raising the gas tax and allowing it to grow in line with inflation have been popular solutions to the financing gap, other jurisdictions have begun charging electric car owners an annual charge. The financial problem will likely become more pressing as the country’s infrastructure, which is now barely passing muster, ages, with its state receiving a C- on the American Society of Civil Engineers’ Report Card.

The good news is that under the Infrastructure Investment and Jobs Act of 2021, the federal government planned $1 trillion for infrastructure expenditure, including $110 billion for road and bridge maintenance and $39 billion for transit modernization.

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