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What Fuels Gas Taxes?

Wolters Kluwer Tax & Accounting explores what’s behind increasing gas taxes and how they can fluctuate from state to state


What: Gas taxes have often been considered something of an integrated ‘user fee’ to pay for construction and repair of US roads, bridges, and interstate highways. As the cost of gasoline at the pump has increased since the 1970s, many states and the federal government had been somewhat reluctant to add to the pain at the pump by increasing gas taxes.

The federal government has not raised the gas tax since 1993. No state raised gas taxes between 2010 to 2012, when the cost of gasoline was rising to some of its highest levels in history. Deferred maintenance on transportation infrastructure is, however, reaching a crisis point. Beginning with increases in 2013, a majority of states have now raised their state taxes on fuel.

The federal government is considering major infrastructure legislation, and an increase in the federal gas tax is being proposed to help pay for it. The White House has also indicated a willingness to consider a gas tax increase to help fund an infrastructure bill

Why: How should gas taxes influence your summer driving plans? Gas tax rates are not the only variable in determining the price of gas at the pump in a particular state. Distribution costs may play an even bigger role in determining the price at the pump than state or federal gas taxes. States are also taking a variety of approaches to increase the gas tax, often building in provisions to make adjustments in the gas tax in the future without further legislative action. Because the price may vary widely depending on the state, gas stations close to state lines may have significantly higher or lower prices, depending on which side of the state line they are on. States with large population centers abutting a borderline may also see residents incentivized to drive to the adjoining state to fill up their tanks.

  • The federal gas tax rate has been 18.4 cents per gallon since 1993. However, infrastructure legislation under consideration in Congress could finally raise this rate
  • Many states are abandoning fixed gas tax rate increases for rates adjusted for inflation, the price of fuel, efficiency of the vehicle, or creating planned increases over a period of time
  • Several states that had a tiered gas tax pricing structure have had to readjust their laws as a sustained lower price of gasoline has resulted in several years of lower tax revenues
  • Some states with the highest pump prices, such as Alaska and Hawaii, have some of the lowest gas taxes, reflecting the role of distribution costs and pressure on legislatures to not add higher taxes to the already high cost of fuel
  • Some states impose other fees that affect the pump price, such as an additional excise taxes, fuel surcharges, gross receipts taxes, transportation infrastructure assessments, as well as license fees
  • California has the highest pump prices and the highest gas taxes in the nation, but it is also surrounded by states that also have similar prices as California at the pump
  • Illinois has enacted the largest gas tax increase this year, from 19 cents to 38 cents a gallon. The state borders several others with significantly lower pump prices. It also is part of an area with major interstate highway routes and has its major population center not far from two other states, giving many residents options when filling up. Comparing nearby gas stations in Illinois to those in Indiana, Iowa, Missouri and Wisconsin, drivers may save from 10 cents to almost 40 cents per gallon depending upon the state where they reside or where they stop for gas
  • Some websites track state-by-state pump prices. When compared to gas taxes tracked by Wolters Kluwer, states with both high pump prices and high gas taxes include California, Washington, Oregon, Idaho, Pennsylvania, and Illinois
  • The states with the lowest pump prices along with the lowest gas taxes include Mississippi, Louisiana, South Carolina, Missouri, Texas, Oklahoma, and Virginia
  • Even with additional state gas tax increases, overall national estimates of pump prices during the summer driving season are trending lower for this summer than the summer of 2018

Who: Federal tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst at Wolters Kluwer Tax & Accounting, is available to discuss the current and historic taxes associated with gas taxes.

PLEASE NOTE: The content of this article is designed to provide accurate and authoritative information in regard to the subject matter covered. The information is provided with the understanding that Wolters Kluwer Tax & Accounting is not engaged in rendering legal, accounting, or other professional services.


About Wolters Kluwer Tax & Accounting 
Wolters Kluwer Tax & Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy, and efficiency.

Wolters Kluwer Tax & Accounting is part of Wolters Kluwer (WKL), a global leader in professional information, software solutions, and services for the healthcare; tax and accounting; governance, risk and compliance; and legal and regulatory sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with advanced technology and services.

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